K. C. NINAN versus KERALA STATE ELECTRICITY BOARD & ORS.
[2023] 9 S.C.R. 637, Supreme Court of India, 2023
Outcome: Disposed off
Segment: Ratio
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[2023] 9 S.C.R. 637 : 2023 INSC 560
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K. C. NINAN
v.
KERALA STATE ELECTRICITY BOARD & ORS.
(Civil Appeal No 2109-2110 of 2004)
MAY 19, 2023
[DR DHANANJAYA Y CHANDRACHUD, CJI,
HIMA KOHLI AND PAMIDIGHANTAM SRI
NARASIMHA, JJ.]
Electricity Act, 2003 – ss. 42 and 61 – Liability of subsequent
owner to pay electricity charges due on previous owner – Whether
the arrears of unpaid electricity dues outstanding from the erstwhile
owner can be claimed from the subsequent owner, who has acquired
the property in proceedings initiated to enforce mortgages or to
pay off the dues of creditors – Held: In order to provide a supply of
electricity to consumers, a distribution licensee is required to lay
down infrastructure such as electricity lines, transformers, and other
equipment – The licensees are required to maintain the infrastructure
even if the consumer does not consume electricity – The 2003 Act
has been enacted to promote the development of the electricity
industry as well as to protect the interests of the consumers and to
ensure the supply of electricity to all areas – The Supply Conditions
providing for recoupment of electricity dues of a previous consumer
from a new owner are necessary to recover the costs incurred for
laying down the infrastructure as well as the ongoing current
liabilities towards the electricity generation and transmission
companies – Apart from protecting a public good, such conditions
also have a reasonable nexus with objects of the 2003
Act, such as
a robust development of the electricity industry, protecting the
interests of consumers as well as the financial interests of the
distribution licensees – It is just and reasonable for distribution
licensees to specify conditions of supply 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.
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Transfer of Property Act, 1882 – s.100 – Charge – Whether
arrears of electricity can become a charge or encumbrance over
the premise – Effect of statutory regulations or rules enacted by a
regulatory commission – Held: A charge cannot be enforced against
a transferee if they have no notice of the same, unless the requirement
of such notice has been dispensed with by law – The provisions of
the 1910 Act, 1948 Act, and the 2003 Act do not provide that the
arrears of electricity dues would constitute a charge on the property
or that such a charge shall be enforceable against a transferee
without notice – In Isha Marbles, the Supreme Court observed that
under the provisions of 1910 Act r/w. 1948 Act, electricity arrears
do not create a charge over the property – Consequently, in general
law, a transferee of the premises cannot be made liable for the
outstanding dues of the previous owner since electricity arrears do
not automatically become a charge over the premises – The rule
making power contained u/s. 181 r/w. s. 50 of Electricity Act, 2003
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 electricity utilities
can create a charge by framing subordinate legislation or statutory
conditions of supply enabling recovery of electricity arrears from a
subsequent transferee – Such a condition
is rooted in the importance
of protecting electricity which is a public good – Public utilities
invest huge amounts of capital and infrastructure in providing
electricity supply – The failure or inability to recover outstanding
electricity dues of the premises would negatively impact the
functioning of such public utilities and licensees – Electricity Act,
2003 – ss. 50 and 181– Maharashtra Electricity Regulatory
Commission (Electricity Supply Code and other Conditions of
Supply) Regulations, 2005 – Regulation 10.5.
Electricity Act, 2003 – s. 43 – Whether the duty to supply
electricity is absolute – Held: s.43 begins with the words “Save as
otherwise provided in this Act” – Hence, the operation of s.43 will
also be subject to compliance with the other provisions of the 2003
Act – Under s.43, the distribution licensee is obligated to supply
electricity to the premises of an owner or occupier, provided that
the owner or occupier pays all charges and complies with all
conditions stipulated by the distribution licensee – The proviso to
s.43(2) further refers to the “price” payable by an applicant to
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demand or to continue to receive the supply of electricity from a
distribution licensee – The term “price” has to be given a broad
meaning to include all the ‘tariffs’ and ‘charges’ that may be
determined by the appropriate commission – Thus, the duty to supply
electricity u/s.43 is not absolute, and is subject to the such charges
and compliances stipulated by the distribution licensees as part of
the application.
Electricity Act, 2003 – ss.2(15) and 43 – Whether duty to
supply electricity is with respect to the premises or to the consumer
– Held: The definition of ‘supply’ specifically states that supply
means the sale of electricity to a consumer – Considering the overall
scheme of the 2003 Act, the supply of electricity is to the consumer
and not the premises – It is the owner or occupier who has the
statutory right to “demand” electricity for the premises under their
use or occupation – Thus, 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
Auction – Auction sale of premises on “as in where is” basis
– With or without reference to electricity arrears-Implication – Held:
When a property is sold on an “as is where is” basis, encumbrances
on the property stand transferred to the purchaser upon the sale –
All prospective auction purchasers are put on notice of the liability
to pay the pending dues when an appropriate “as is where is” clause
is incorporated in
the auction sale agreement – While examining
the effect of an “as is where is” clause, the facts and circumstances
of each case individually, along with the terminology of the clauses
governing the auction sales must be taken into consideration, to
arrive at an equitable decision.
Interpretation of Statutes – Principle of Ejusdem Generis –
Rule of Construction – Applicability of – Ingredients – Discussed.
Disposing of the appeals, the Court
HELD:1. Under Section 43 of the Electricity Act, 2003, the
distribution licensee is obligated to supply electricity to the
premises of an owner or occupier, provided that the owner or
occupier pays all charges and complies with all conditions
stipulated by the distribution licensee. Section 43 begins with
K. C. NINAN v. KERALA STATE ELECTRICITY BOARD &
ORS.
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[2023] 9 S.C.R.
the words “Save as otherwise provided in this Act”. Hence, the
operation of Section 43 will also be subject to compliance with
the other provisions of the 2003 Act. The proviso to Section 43(2)
further refers to the “price” payable by an applicant to demand
or to continue to receive the supply of electricity from a
distribution licensee. The “price” is to be determined by the
appropriate commission. This “price” is the consideration, as
determined by the State Commission, that an applicant pays for
receiving a supply of electricity. The term “price” has to be given
a broad meaning to include all the ‘tariffs’ and ‘charges’ that may
be determined by the appropriate commission. This includes the
‘charges’ fixed under Section 45 by the appropriate commission
from time to time and the ‘charges’ that a distribution licensee
may impose under Section 46 to recover any reasonable
expenditure. The ambit of the term ‘price’ is wide enough to also
include the statutory dues that the State Commission decides to
enact by way of regulations under Section 50. Thus, the duty to
supply electricity under Section 43 is not absolute, and is subject
to such charges and compliances stipulated by the distribution
licensees as part of the application. [Paras 32, 40, 41-43][670-B-
C; 672-F-G; 673-A-B]
2. The definition of ‘supply’ specifically states that supply
means the sale of electricity to a consumer. The said definition
does not
indicate that supply of electricity is vis-a-vis the
premises of the consumer. Considering the overall scheme of
the 2003 Act, the supply of electricity is to the consumer and not
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. [Paras 50 and 56][676-D]
3. Under Section 43 of the 2003 Act, the owner or occupier
of premises can seek a supply of electricity for particular
premises. Perforce, when electricity is supplied, the owner or
occupier becomes a consumer only with respect to those
particular premises for which electricity is sought and provided.
For example, when a person owning an apartment in a residential
complex applies for supply of electricity to such an apartment,
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they become a consumer only with respect to the apartment for
which the application is made and to which electricity is supplied.
Such a person may own another apartment to which electricity
may already be supplied, but they will be considered a separate
consumer with respect to the second apartment. For an application
to be considered as a ‘reconnection’, the applicant has to seek
supply of electricity with respect to the same premises for which
electricity was already provided. Even if the consumer is the same,
but the premises are different, it will be considered as a fresh
connection and not a reconnection. [Para 61][679-H; 680-A-C]
4. The scheme of the 2003 Act makes it evident that the
regulatory powers of the State Commission under section 181(2)
are of wide import. The Commission has certain plenary powers
to regulate on matters contained in section 181(2), including
Electric Supply Code under Section 50. Accordingly, the
Commission can notify a Supply Code governing all the matters
pertaining to supply of electricity such as “recovery of charges”,
“disconnection of supply” and “restoration of supply”. In the
opinion of this Court, such an authority also extends to stipulating
conditions for recovery of electricity arrears of previous owners
from new or subsequent owners. [Para 84][690-F-G]
5. The 2003 Act has been enacted to promote the
development of the electricity industry as well as to protect the
interests of the consumers and to ensure the
supply of electricity
to all areas. The Supply Conditions providing for recoupment of
electricity dues of a previous consumer from a new owner are
necessary to recover the costs incurred for laying down the
infrastructure as well as the ongoing current liabilities towards
the electricity generation and transmission companies. In the
absence of such conditions, it may be difficult for the distribution
licensees to recover defaulted payments, adding to the revenue
deficits. This may adversely impact the financial health of the
distribution licensees to the detriment of the interests of the
consumers. The Conditions of Supply and Electricity Supply Code
K. C. NINAN v. KERALA STATE ELECTRICITY BOARD &
ORS.
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which require the payment of electricity dues of a previous owner
as a condition for the grant of an electricity connection have a
clear nexus to the scheme of the parent legislations and the
objectives sought to be achieved. It is just and reasonable for
distribution licensees to specify conditions of supply 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. [Paras 87 and 91][691-G-H; 692-A; 693-E-F]
6. The electricity utilities can create a charge by framing
subordinate legislation or statutory conditions of supply enabling
recovery of electricity arrears from a subsequent transferee. Such
a condition is rooted in the importance of protecting electricity
which is a public good. Public utilities invest huge amounts of
capital and infrastructure in providing electricity supply. The
failure or inability to recover outstanding electricity dues of the
premises would negatively impact the functioning of such public
utilities and licensees. In the larger public interest, conditions
are incorporated in subordinate legislation whereby Electric
Utilities can recoup electricity arrears. Recoupment of electricity
arrears is necessary to provide funding and investment in laying
down new infrastructure
and maintaining the existing
infrastructure. In the absence of such a provision, Electric Utilities
would be left without any recourse and would be compelled to
grant a fresh electricity connection, even when huge arrears of
electricity are outstanding. Besides impacting on the financial
health of the Utilities, this would impact the wider body of
consumers. [Para 113][700-F-H; 701-A]
7. The period of limitation under Section 56(2) is relatable
to the sum due under Section 56. The sum due under Section 56
relates to the sum due on account of the negligence of a person
to pay for electricity. Section 56(2) provides that such sum due
would not be recoverable after the period of two years from when
such sum became first due. The means of recovery provided under
Section 56 relate to the remedy of disconnection of electric supply.
The right to recover still subsists. This Court rejects the
submission of the auction purchasers that the recovery of
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outstanding electricity arrears either by instituting a civil suit
against the erstwhile consumer or from a subsequent transferee
in exercise of statutory power under the relevant conditions of
supply is barred on the ground of limitation under Section 56(2)
of the 2003 Act. Accordingly, while the bar of limitation under
Section 56(2) restricts the remedy of disconnection under Section
56, the licensee is entitled to recover electricity arrears through
civil remedies or in exercise of its statutory power under the
conditions of supply. [Paras 129 and 131][709-B-C; F-H]
8. All prospective auction purchasers are put on notice of
the liability to pay the pending dues when an appropriate “as is
where is” clause is incorporated in the auction sale agreement.
It is for the intending auction purchaser to satisfy themselves in
all respects about circumstances such as title, encumbrances and
pending statutory dues in respect of the property they propose
to purchase. In a public auction sale, auction purchasers have
the opportunity to inspect the premises and ascertain the facilities
available, including whether electricity is supplied to the premises.
Information about the disconnection of power is easily
discoverable with due diligence, which puts a prudent auction
purchaser on a reasonable enquiry about the reasons for the
disconnection. When electricity supply to a premises has been
disconnected, it would be implausible for the purchaser to assert
that they
were oblivious of the existence of outstanding electricity
dues. In terms of the legal doctrine of caveat emptor, it becomes
the duty of the buyer to exercise due diligence. A seller is not
under an obligation to disclose patent defects of which a buyer
has actual or constructive notice in terms of Section 3 of the
Transfer of Property act, 1882. However, in terms of Section
55(1)(a), in the absence of a contract to the contrary, the seller is
under an obligation to disclose material defects in the property
or in the seller’s title thereto of which he is aware and which a
buyer could not with ordinary care discover for himself. While
examining the effect of an “as is where is” clause, the facts and
circumstances of each case individually, along with the terminology
of the clauses governing the auction sales must be taken into
consideration, to arrive at an equitable decision. [Paras 141-
143][715-G-H; 716-A-E]
K. C. NINAN v. KERALA STATE ELECTRICITY BOARD &
ORS.
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9. The rule of “ejusdem generis” is a principle of
construction. The rule is that when general words follow particular
and specific words of the same nature, the general words must
be confined to the things of the same kind as those specified. It
applies when the following ingredients are present: (i) the statute
contains an enumeration of specific words; (ii) the subjects of
enumeration constitute a class or category; (iii) that category is
not exhausted by the enumeration; (iv) a general term follows
the enumeration; and (v) there is no indication of a different
legislative intent. For the application of the ejusdem generis rule,
it is essential that enumerated things before the general words
must constitute a distinct category or a genus or a family which
admits of a number of members. [Paras 187 and 188][732-D-F]
Conclusions
10. a). The duty to supply electricity under Section 43 of
the 2003 Act is not absolute, and is subject to the such charges
and compliances stipulated by the Electric Utilities as part of the
application for supply of electricity; b). The duty to supply
electricity under Section 43 is with respect to the owner or
occupier of the premises. The 2003 Act contemplates a synergy
between the consumer and premises. Under Section 43, when
electricity is supplied, the owner or occupier becomes a consumer
only with respect to those particular premises for which electricity
is sought and provided by the
Electric Utilities; c). For an
application to be considered as a ‘reconnection’, the applicant
has to seek supply of electricity with respect to the same premises
for which electricity was already provided. Even if the consumer
is the same, but the premises are different, it will be considered
as a fresh connection and not a reconnection; d). A condition of
supply enacted under Section 49 of the 1948 Act requiring the
new owner of the premises to clear the electricity arrears of the
previous owner as a precondition to availing electricity supply
will have a statutory character; e). 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; f). The Electricity Supply Code providing for recoupment
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of electricity dues of a previous consumer from a new owner have
a reasonable nexus with the objects of the 2003 Act; g). 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; h). The power to initiate recovery proceedings by filing a
suit against the defaulting consumer is independent of the power
to disconnect electrical supply as a means of recovery under
Section 56 of the 2003 Act; i). 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 for power
connection, and taxes of the local authorities; and j). In the
exercise of the jurisdiction under Article 142 of the Constitution,
the Electric Utilities have been directed in the facts of cases to
waive the outstanding interest accrued on the principal dues from
the date of application for supply of electricity by the auction
purchasers. [Para 328][781-B-H; 782-A-E]
PTC India Ltd. v. Central Electricity Regulatory
Commission (2010) 4 SCC 603 : [2010] 3 SCR 609 –
followed.
Deputy Commercial Tax Officer, Park Town Division v.
Sha Sukhraj Peerajee AIR 1968 SC 67 :
[1967] 3 SCR 
661 and State of Kerala v. VT Kallianikutty (1999) 3
SCC 657 : [1999] 2 SCR  372 - held not applicable.
Indian Council of Legal Aid and Advice v. Bar Council
of India (1995) 1 SCC 732 : [1995] 1 SCR 304; India
Cement Ltd & Ors v. State of Tamil Nadu (1990) 1 SCC
12 : [1989] 1 Suppl. SCR 692; Punjab Urban Planning
and Development Authority v. Raghu Nath Gupta (2012)
8 SCC 197 : [2012] 8 SCR 118; Delhi Development
Authority v. Kenneth Builders and Developers Pvt
Limited (2016) 13 SCC 561 : [2016] 3 SCR 1126 –
distinguished.
Deepak Theatre v. State of Punjab (1992) 1 Supp SCC
684 : [1991] 3 Suppl. SCR 242; K Ramanathan v. State
K. C. NINAN v. KERALA STATE ELECTRICITY BOARD &
ORS.
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SUPREME COURT REPORTS
[2023] 9 S.C.R.
of Tamil Nadu (1985) 2 SCC 116 : [1985] 2 SCR 1028;
V S Rice and Oil Mills v. State of Andhra Pradesh [1964]
7 SCR 456; Dakshin Haryana Bijli Vitran Nigam Ltd v.
M/s Paramount Polymers Pvt Ltd. AIR 2007 SC 2 :
[2006] 7 Suppl. SCR 635 and Paschimanchal Vidyut
Vitran Nigam Limited v. DVS Steels and Alloys Private
Limited (2009) 1 SCC 210 : [2008] 15 SCR 766 – relied
on.
Brihanmumbai Electric Supply & 
Transport
Undertaking v. Maharashtra Electricity Regulatory
Commission (2015) 2 SCC 438 : [2014] 6 SCR 50 –
affirmed.
Isha Marbles v. Bihar State Electricity Board (1995) 2
SCC 648 : [1995] 1 SCR 847; Ahmedabad Electricity
Co. Ltd. v. Gujarat Inns (P) Ltd. (2004) 3 SCC 587 :
[2004] 3 SCR 23; Hyderabad Vanaspathi Ltd v. Andhra
Pradesh State Electricity Board (1998) 4 SCC 470 :
[1998] 2 SCR 620; Telangana State Southern Power
Distribution Co. Ltd. v. Srigdhaa Beverages (2020) 6
SCC 404 : [2020] 4 SCR 295; Chandu Khamaru v.
Nayan Malik (2011) 12 SCC 314 : [2011] 11 SCR 112 ;
AP TRANSCO v. Sai Renewable Power (P) Ltd. (2011)
11 SCC 34 : [2010] 8 SCR 636; BSES Ltd. v. Tata
Power Co. Ltd. (2004) 1 SCC 195 : [2003] 4 Suppl.
SCR 932; Commissioner of Sales Tax, Madhya Pradesh,
Indore v. Madhya Pradesh Electricity Board, Jabalpur
(1969) 1 SCC 200 : [1969] 2 SCR 939; State of AP v.
National Thermal Power Corporation Ltd. (2002) 5 SCC
203 : [2002] 3 SCR 278; Uttar Pradesh Power
Corporation Limited v. Anis Ahmad (2013) 8 SCC 491
:
[2013] 13 SCR 388; Jivendra Nath Kaul v. Collector/
District Magistrate (1992) 3 SCC 576 : [1992] 3 SCR 
642; State of Uttar Pradesh v. Hindustan Aluminium
Corporation (1979) 3 SCC 229 : [1979] 3 SCR 709;
Punjab State Electricity Board v. Bassi Cold Storage,
Kharar and Another (1994) 2 Supp SCC 124 : [1994]
3 SCR 33; Jagdamba Paper Industries (P) Ltd v.
Haryana State Electricity Board (1983) 4 SCC 508 :
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[1984] 1 SCR 165; Bihar State Electricity Board v.
Parmeshwar Kumar Agarwala (1996) 4 SCC 686 :
[1996] 3 Suppl. SCR 29; Ferro Alloys Corpn. Ltd v. A
P State Electricity Board (1993) 4 Supp SCC 136 :
[1993] 3 SCR 199; India Thermal Power Ltd v. State of
MP (2000) 3 SCC 379 : [2000] 1 SCR 925; Haryana
State Electricity Board v. Hanuman Rice Mills, Dhanaur
(2010) 9 SCC 145 : [2010] 10 SCR 217; JK Industries
Ltd. v. Union of India (2007) 13 SCC 673 : [2007]
12 SCR 136; M.L. Abdul Jabbar Sahib v. M.V. Venkata
Sastri & Sons (1969) 1 SCC 573 : [1969] 3 SCR  513;
Ahmedabad Municipal Corporation v. Haji Abdulgafur
Haji Hussenbha (1971) 1 SCC 757; Dattatreya Shanker
Mote v. Anand Chintaman Datar & Ors. (1974) 2 SCC
799 : [1975] 2 SCR 224; State of Karnataka v. Shreyas
Papers Pvt. Ltd. (2006) 1 SCC 615 : [2006] 1 SCR 235;
AI Champdany Industries Ltd. v. Official Liquidator
(2009) 4 SCC 486 : [2009] 2 SCR 705; Ajmer Vidyut
Vitran Nigam Limited v. Rahamatullah Khan (2020) 4
SCC 650 : [2020] 2 SCR 929; M/s Prem Cortex v. Uttar
Haryana Bijli Vitran Nigam Limited Judgment dt.
5.10.2021 in CA 7235 of 2009; Bihar SEB v. Iceberg
Industries Ltd. (2020) 20 SCC 745 : [2020] 6 SCR 231;
M/s Swastic Industries v. Maharashtra State Electricity
Board (1997) 9 SCC 465 : [1997] 1 SCR  532;
Kusumam Hotels Pvt Ltd v. Kerala State Electricity Board
(2008) 12 SCC 213 : [2008] 9 SCR 752; U.T.
Chandigarh Administration v. Amarjeet Singh (2009) 4
SCC 660 : [2009] 4  SCR 54; State of Madhya
Pradesh
v. Tikamdas (1975) 2 SCC 100 : [1975] Suppl. SCR 
234; Special Officer, Commerce, North Eastern
Electricity Supply Company of Orissa v. Raghunath
Paper Mills Private Limited (2012) 13 SCC 479 : [2012]
13 SCR 71; Amar Chandra v. Collector of Excise,
Tripura (1972) 2 SCC 442 : [1973] 1 SCR 533; Grasim
Industries Ltd. v. Collector of Customs (2002) 4 SCC
297 : [2002] 2 SCR 945; Lokmat Newspapers (P) Ltd.
v. Shankarprasad (1999) 6 SCC 275 : [1999] 3 SCR 
907; Jaiprakash Associates Ltd. v. Tehri Hydro
K. C. NINAN v. KERALA STATE ELECTRICITY BOARD &
ORS.
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SUPREME COURT REPORTS
[2023] 9 S.C.R.
Development Corpn. (India) Ltd. (2019) 17 SCC 786 :
[2019] 2 SCR 41; Adoni Cotton Mills Ltd. v. Andhra
Pradesh State Electricity Board  (1976) 4 SCC 68 :
[1977] 1 SCR 133; Mangalore Electric Supply Co. Ltd.
v. The Commissioner of Income Tax, West Bengal (1978)
3 SCC 248 : [1978]  3 SCR 913; Valparaiso Kottarathil
Kochuni v. States of Madras & Kerala [1960] 3 SCR
887; BHEL v. Globe Hi-Fabs Ltd. (2015) 5 SCC 718;
Tata Motors Ltd v. Pharmaceutical Products of India
Ltd. (2008) 7 SCC 619 : [2008] 9 SCR 267; LIC v. D J
Bahadur (1981) 1 SCC 315 : [1981] 1 SCR 1083; UP
State Electricity Board v. Hari Shankar Jain (1978) 4
SCC 16 : [1979] 1 SCR 355; KSL & Industries Ltd v.
Arihant Threads Ltd. (2015) 1 SCC 166 : [2014] 14
SCR 1097 – referred to.
Suraj v. KSEB 2005 (3) KLT 856; A Ramachandran v.
KSEB 2000 SCC OnLine Ker 75 – referred to.
Case Law Reference
[1995] 1 SCR 847
referred to
Para 17
[2004] 3 SCR 23
referred to
Para 18
[1998] 2 SCR 620
referred to
Para 19
[2006] 7 Suppl. SCR 635 
relied on
Para 20
[2008] 15 SCR 766
relied on
Para 21
[2020] 4 SCR 295
referred to
Para 22
[2011] 11 SCR 112 
referred to
Para 31
[2014] 6 SCR 50
affirmed
Para 32
[2010] 8 SCR 636  
referred to
Para 38
[2003] 4 Suppl. SCR 932
referred to
Para 39
[1969] 2 SCR 939
referred to
Para 44
[2002] 3 SCR 278 
referred to
Para 44
[2013] 13 SCR 388
referred to
Para 46
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[1992] 3 SCR 642
referred to
Para 47
[1979] 3 SCR 709
referred to
Para 66
[1994] 3 SCR 33
referred to
Para 69
[1984] 1 SCR 165
referred to
Para 69
[1996] 3 Suppl. SCR 29 
referred to
Para 69
[1993] 3 SCR 199 
referred to
Para 70
[2000] 1 SCR 925
referred to
Para 73
[1991] 3 Suppl. SCR 242
relied on
Para 75
[1985] 2 SCR 1028 
relied on
Para 75
[1964] 7 SCR 456
relied on
Para 76
[2010] 10 SCR 217
referred to
Para 77
[2007] 12 SCR 136
referred to
Para 82
[2010] 3 SCR 609
followed
Para 83
[1969] 3 SCR 513
referred to
Para 92
(1971) 1 SCC 757
referred to
Para 93
[1975] 2 SCR 224 
referred to
Para 96
[2006] 1 SCR 235
referred to
Para 96
[2009] 2 SCR 705
referred to
Para 97
[1967] 3 SCR 661
held not applicable
Para 105
[1995] 1 SCR 304
distinguished
Para 105
[1989] 1 Suppl. SCR 692
distinguished
Para 105
[2020] 2 SCR 929
referred to
Para 114
[1999] 2 SCR 372 
held not applicable
Para 116
[2020] 6 SCR 231
referred to
Para 121
[1997] 1 SCR 532 
referred to
Para 123
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[2008] 9 SCR 752
referred to
Para 125
[2012] 8 SCR 118
distinguished
Para 132
[2016] 3 SCR 1126
distinguished
Para 132
[2009] 4 SCR 54
referred to
Para 134
[1975] Suppl. SCR 234
referred to
Para 160
[2012] 13 SCR 71
referred to
Para 185
[1973] 1 SCR 533
referred to
Para 187
[2002] 2 SCR 945 
referred to
Para 187
[1999] 3 SCR 907 
referred to
Para 188
[2019] 2 SCR 41
referred to
Para 188
[1977] 1 SCR 133
referred to
Para 188
[1978] 3 SCR 913
referred to
Para 194
[1960] 3 SCR 887
referred to
Para 196
(2015) 5 SCC 718
referred to
Para 196
[2008] 9 SCR 267  
referred to
Para 282
[1981] 1 SCR 1083 
referred to
Para 284
[1979] 1 SCR 355 
referred to
Para 285
[2014] 14 SCR 1097 
referred to
Para 287
CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 2109-
2110 of 2004.
From the Judgment and Order dated 13.02.2003 of the High Court
of Kerala at Ernakulam in O.P. No.10441 of 1991 and dated 03.09.2003
in R.P. No. 307 of 2003.
With
Civil Appeal Nos. 2108 of 2004, 5312-5313, 5314, 6587, 7303 of
2005, 6579, 6593-6594 of 2022, 3018 of 2007, 7169, 6591, 6595, 6879-
6881, 6592, 7103-7104, 6828, 7064, 6590 and 3640 of 2022.
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Ranjit Kumar, Vijay Hansaria, M.G. Ramachandran, Ajit S Bhasme,
V. Giri, Shekhar Naphade, Rana Mukherjee, Bharat Patel, P.S. Patwalia,
Ravindra Kumar, Sr. Advs., Mahesh Agarwal, Ankur Saigal, Ms. Sayaree
Basu Mallick, Abhinabh Garg, Shashwat Singh, E.C. Agrawala, Pradeep
Misra, Daleep Dhyani, Manoj Kumar Sharma, Kshitij Mittal, Ms.
Madhumita Bhattacharjee, Ms. Srija Choudhury, Ms. Kavya Jhawar,
Ms. Srishti Khindaria, Bhargava V. Desai, Ms. Charu Modi, Deepanshu,
Sanjay Kumar Visen, Mukesh Kumar Pandey, Suresh Kumar Bhan,
Sandeep Joshi, Ms. Ritu Rastogi, Ms. Mohini Kumari, Aman, E. M. S.
Anam, Puneet Jain, Christi Jain, Yogit Kamat, Mann Arora, Umang
Mehta, Ms. Shruti Singh, Ms. Pratibha Jain, Romy Chacko, Sudesh Kumar
Singh, Nikhil Jain, Susheel Tomar, Puneet Singh Bindra, Satya Prakash,
Vinod Kumar Jain, Prashant Mohla, Ms. Simran Jeet, Yasharth Kant,
Ms. Zinnea Mehta, Shrirang B. Varma, Sagar Juneja, Harshit Sethi,
Neeraj Kumar Verma, Ms. Kavya Jhawar, Ms. Sneha Kalita, Ms.
Hemantika Wahi, Ms. Jesal Wahi, Anand Ganesan, Ms. Aneesh Bajaj,
Amar Dave, Ms. Nandini Gore, Ms. Neha Khandelwal, Ms. Ramya
Khanna, Ms. Farah Hashmi, Dr. Prashant Pratap, Kumar Mitakshar,
Yashwant Gaggar, Mrs. Manik Karanjawala, R.B. Phookan, Ms. Neha
Tandon, Shailesh Madiyal, Chirag M. Shroff, Ms. Ruby Singh Ahuja,
Raj Singh Rana, Vijay K Verma, Ms. Akshita Mohnot, Rajat Srivastav,
Praveen Chaturvedi, M.Y. Deshmukh, Ms. Manjeet Kirpal, Ms.
Adveetiya Sharma, Rameshwar Prasad Goyal,
Ashok Mathur, Purvish
Jitendra Malkan, Alok Kumar, Mrs. Dharita Purvish Malkan, Ms. Nandini
Chhabra, Vismay Malkan, Ms. Dhruva Kumar, Chandan Kumar Mandal,
Shakti Chand Jaidwal, D.N. Ray, Dillip Kumar Nayak, Ms. Disha Ray,
Mrs. Sumita Ray, P. V. Dinesh, Raghenth Basant, Rahul Raj Mishra,
Bineesh K., Ashwini Kumar Singh, Sudhir, Parinay Deep Shah, Ms.
Sharmila Upadhyay, Shivaji M. Jadhav, Brij Kishor Sah, Ms. Shivani
Rautela, Ms. Apurva, Adarsh Kumar Pandey, M/s. Ap & J Chambers,
Jatin Zaveri, T. Srinivasa Murthy, P. N. Gupta, Mrs. Bharti Gupta, Ram
Lal Roy, Ms. Anukriti Sugam, Abhijeet Sinha, P. V. Yogeswaran, Ms.
Bansuri Swaraj, Sidhesh Kotwal, Ms. Ana Upadhyay, Ms. Manya Hasija,
Nihar Dharmadhikari, Akash Singh, Ms. Harshika Verma, Nirnimesh
Dube, Ms. Divya Roy, P. S. Sudheer, Ms. Anne Mathew, Bharat Sood,
Ms. Shruti Jose, Siddharth Dharmadhikari, Aaditya A. Pande, Bharat
Bagla, Ms. Deepanwita Priyanka, Advs. for the appearing parties.
K. C. NINAN v. KERALA STATE ELECTRICITY BOARD &
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The Judgment of the Court was delivered by
DR DHANANJAYA Y CHANDRACHUD, CJI
Table of Contents*
A. Overview .......................................................................... 4
B.
Regulatory Regime........................................................... 5
C.
The position in law ......................................................... 10
D. Issues.............................................................................. 14
E.
Submissions .................................................................... 15
F.
Analysis .......................................................................... 25
G.
Application: Facts of Individual Cases ........................... 89
I.
Kerala ............................................................................. 90
II.
Maharashtra ................................................................... 99
III. Gujarat .......................................................................... 132
IV. Assam........................................................................... 166
V.
West Bengal ................................................................. 170
H. Equity and Fairness ...................................................... 175
I.
Conclusions................................................................... 177
A. Overview
1. The nineteen cases in this batch of appeals follow a similar
pattern of facts. 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.
*Ed. Note : Pagination in the Table is as per the original Judgment.
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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.
2. In Maharashtra State Electricity Board v. Super &
Stainless Hi Alloy Ltd1, this Court by an order dated 24 August 2006
referred the Civil Appeals to a Bench of three Judges for dealing with
the issue of the recovery of arrears of electricity. The order of reference
referred the question of whether electricity dues constitute a charge on
the property so far as the transferor and the transferee of the unit are
concerned.
3. The matters involving similar nature of dispute were tagged
along with the above reference by an order dated 1 November 2007.
The issue which is raised in these appeals is whether the arrears of
unpaid electricity dues outstanding from the erstwhile owner can be
claimed from the subsequent owner, who has acquired the property in
proceedings initiated to enforce mortgages or to pay off the dues of
creditors.
B. Regulatory Regime
4. Electricity is a concurrent subject under the Constitution of
India. Prior to the enactment of the Electricity Act 20032, the Electricity
Act 19103 governed the supply and use of electrical energy in India. The
1910 Act prescribed the legal framework for laying down cables and
other works related to the supply of electricity. It also laid down a legal
framework for supply of electrical energy and imposed certain
responsibilities and obligations on
persons licensed to supply electricity
with a view to incentivise the growth of the electricity industry through
private licensees.
5. Section 2(c) of the 1910 Act defined “consumer” as any person
supplied with energy by a licensee or any other person engaged in the
business of supplying energy to the public under the Act, and included
any person whose premises were for the time being connected for the
purposes of receiving energy. Section 21(2) empowered a licensee to
make conditions to regulate their relations with persons who were or
intend to become consumers. Section 22 obligated a licensee to supply
1 Civil Appeal Nos 5312-5313 of 2005
2 “2003 Act”
3 “1910 Act”
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electrical energy, on application, to every person within the area of supply
on the same terms as those on which any other person in the same area
was entitled. Section 24 empowered the licensee to disconnect the supply
of electricity if any person neglected to pay any charge or sum for energy
due to the licensee.
6. The 1910 Act was found inadequate for a coordinated
development of electricity and a “grid-system” in India. Therefore, the
Electricity (Supply) Act 19484 was enacted for the rationalisation of the
production and supply of electricity and for taking measures conducive
to the development of electricity. The 1948 Act mandated the state
governments to constitute State Electricity Boards under Section 5 and
entrusted them with the responsibility of administering the grid-system
and arranging the supply of electricity in the state. Section 26 provided
that, subject to the provisions of the Act, the Board shall have all the
powers and the obligations of a licensee under the 1910 Act. Section 49
empowered the Boards to supply electricity to any person, not being a
licensee, on such terms and conditions as laid down by the Board. In
terms of Section 70(2), the provisions of the 1948 Act were in addition
to, and not in derogation of the 1910 Act.
7. Parliament enacted the Electricity Regulatory Commissions Act
19985 with an aim to distance the government from determination of
tariffs. The 1998 Act created the
Central Electricity Regulatory
Commission and enabled the state governments to create State Electricity
Regulatory Commissions.
8. Parliament consolidated and harmonised the provisions of the
1910 Act, 1948 Act, and 1998 Act by enacting the 2003 Act. In the
process, the 2003 Act repealed the aforesaid three legislations. The long
title of the 2003 Act reads as follows:
“An Act to consolidate the laws relating to generation, transmission,
distribution, trading and use of electricity and generally for taking
measures conducive to development of electricity industry,
promoting competition therein, protecting interests of consumers
and supply of electricity to all areas, rationalisation of electricity
tariff, ensuring transparent policies regarding subsidies, promotion
of efficient and environmentally benign policies, constitution of
Central Electricity Authority, Regulatory Commissions and
4 “1948 Act”
5 “1998 Act”
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establishment of Appellate Tribunal and for matters connected
therewith or incidental thereto.”
9. The 2003 Act has been enacted in pursuance of the policy of
encouraging private sector participation in the generation, transmission,
and distribution of electricity. Other objectives of the 2003 Act include
vesting the regulatory responsibilities from government to the regulatory
commissions, delicensing of electricity generation, promotion of captive
generation, and encouraging open access transmission. Section 2(15) of
the 2003 Act defines ‘consumer ‘in terms similar to Section 2(c) of the
1910 Act. Part VI of the 2003 Act deals with distribution of electricity.
Section 43 casts a Universal Service Obligation6 on the distribution
licensee to provide supply of electricity to the premises of an owner or
occupier. The State Commission has been empowered under Section 50
to specify an Electricity Supply Code to provide among other things for
the recovery of electricity charges, intervals for billing of electricity
charges and disconnection of supply of electricity for non-payment. Under
Section 56, the generating company or distribution licensee, as the case
may be, may disconnect electricity supply of any person who neglects to
pay any charge or sum for electricity. Section 181(2)(x) provides that
the State Commission may make regulations inter alia providing for, the
Electricity Supply Code under Section 50.
10. In light of the provisions contained in the
1910 Act, 1948 Act,
and 2003 Act, various Electric Utilities such as State Electricity Regulatory
Commissions, State Electricity Boards, and distribution licensees notified
Conditions of Supply requiring the new owner of premises to clear the
outstanding dues of the previous owner. The nineteen cases in the batch
of appeals originate from the States of Kerala, Maharashtra, Gujarat,
Assam, and West Bengal.
11. In Kerala, the Kerala State Electricity Board7 notified the
Conditions of Supply of Electrical Energy in 1990. Condition 15(e) of the
Conditions of Supply provides that reconnection or a new connection
shall not be given to any premises unless the arrears due to the Board
are cleared.
12. In Maharashtra, the Maharashtra State Electricity Board8
framed MSEB Conditions and Miscellaneous Charges for Supply of
6 “USO”
7 “KSEB”
8 “MSEB”
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Electrical Energy, 19769 in exercise of power under the 1948 Act. Clause
23(b) of the MSEB Conditions of Supply allowed the Board to refuse to
supply or give a new electricity connection to any person claiming to be
an heir, legal representative, transferee, assignee or successor of the
defaulting consumer. After the enactment of the 2003 Act, the
Maharashtra Electricity Regulatory Commission (Electricity Supply Code
and other Conditions of Supply) Regulations 200510 were framed.
Regulation 10.5provides that 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).
13. In Gujarat, the Gujarat Electricity Board inserted Condition
2(j) in the Conditions and Miscellaneous Charges for Supply of Electrical
Energy in 2001.11 This condition empowered the Board to insist that the
new occupier of the premises clear the pending electricity dues of the
previous consumer as a precondition to reconnection or release of a
fresh connection. In 2005, the Gujarat Electricity Regulatory Board
notified the Gujarat Electricity Regulatory Commission (Electricity Supply
Code and Related Matters) Regulations, 200512. Clause 4.1.11 of Gujarat
Electricity Supply Code, 2005 provided that only the dues of the applicant,
if any, were required to be paid at the time of the application for a new
connection. The said Clause
was later amended in 2010 to provide that
the distribution licensee need not entertain an application for reconnection
or a new connection unless any dues relating to those premises are
cleared.
14. In Assam, the Assam Electricity Regulatory Commission13
framed the Assam Electricity Regulatory Commission (Electricity Supply
Code and Related Matters) Regulations, 2004.14 Clause 3.6 dealing with
the requisition of electricity supply requires a person occupying a new
premises to ensure that all the outstanding electricity dues are duly paid
up and discharged.
15. In West Bengal, the West Bengal Electricity Regulatory
Commission (Electricity Supply Code) Regulations, 201215 have been
9 “MSEB Conditions of Supply”
10 “Maharashtra Electricity Supply Code 2005’’
11 “Gujarat Conditions of Supply”
12 “Gujarat Electricity Supply Code”
13 “AERC”
14 “AERC Supply Code”
15 “WB Electricity Supply Code”
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notified under the 2003 Act. Clause 3.4.2 of the said regulations empowers
the licensee to recover the dues of a previous consumer in respect of
the premises from a new consumer only if there is a nexus between the
previous consumer and the new consumer.
16. The subsequent owners or occupiers of the premises challenged
the Conditions of Supply and Electricity Supply Codes enacted by the
Electric Utilities before the respective High Courts when they were
called upon to clear the arrears of the previous owners or dues relating
to the premises.
C. The position in law
17. Prior to the enactment of the 2003 Act, in Isha Marbles v.
Bihar State Electricity Board,16 a three-judge Bench of this Court
held that in the absence of a charge being created over the premises by
a statutory regulation, an auction purchaser cannot be asked to clear the
past arrears of electricity dues as a condition precedent to the grant of
electricity. This Court elucidated the position in the context of Section 24
of the 1910 Act to emphasise that the contract for supply was only
between the Electricity Board and the previous consumer, and the
subsequent purchaser was neither a consumer within the meaning of
the 1910 Act nor had any contractual relationship with the Electricity
Board. This Court noted that though electricity is public property which
the law must protect, yet the law, as it stood at that time, was inadequate
to enforce the liability of unpaid electricity charges of a
previous consumer
against a subsequent purchaser of the premises. In Isha Marbles
(supra), this Court did not have to deal with any statutory rule, regulation
or conditions of supply dealing with the imposition of liability for the
payment of electricity dues on a subsequent purchaser.
18. Thereafter, another Bench of three judges in Ahmedabad
Electricity Co. Ltd. v. Gujarat Inns (P) Ltd,17 held that in a case of a
fresh connection, though the premises are the same, the auction
purchasers cannot be held liable to clear the arrears incurred by the
previous owners in respect of power supplied to the premises in the
absence of a specific statutory provision in that regard. However, this
Court opined that there was a need for reconsideration of the “wide
propositions of law” laid down in Isha Marbles (supra).
16 1995 SCC (2) 648
17 (2004) 3 SCC 587
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19. In Hyderabad Vanaspathi Ltd v. Andhra Pradesh State
Electricity Board,18 a three-judge Bench of this Court observed that
the terms and conditions of supply notified by the Electricity Boards are
statutory in character as they have been framed in exercise of statutory
power under Section 49 of the 1948 Act. The mere fact that individual
agreements were entered into with every consumer did not make the
agreement contractual in nature.
20. In a series of subsequent decisions of this Court, various two-
judge Bench decisions have taken note of specific statutory regulations
enabling recovery of dues from subsequent purchasers. In the process,
this Court distinguished Isha Marbles (supra), where the Court had no
occasion to consider similar provisions. In Dakshin Haryana Bijli Vitran
Nigam Ltd v. M/s Paramount Polymers Pvt Ltd,19 this Court was
dealing with Clause 21A of the relevant Conditions of Supply, which
entitled a licensee to demand payment of outstanding dues from a
transferee if they desired a service connection. It was held that Isha
Marbles (supra) cannot be applied to strike down Clause 21A as the
Court in that case had no occasion to consider the effect of a similar
clause. The matter was remitted back to the High Court for a fresh
decision since it had not adjudicated on the implication of Clause 21A of
the Conditions of Supply.
21. In Paschimanchal Vidyut Vitran Nigam Limited v. DVS
Steels and Alloys
Private Limited,20 this Court observed that a
licensee or an electricity distributor can insist upon fulfilment of statutory
rules, regulations or the conditions of supply so long as they are not
arbitrary and unreasonable. It was further held that the conditions of
supply mandating the clearance of electricity dues of a previous owner
by a new purchaser before electricity supply is restored or a new
connection is given to the premises cannot be termed as unreasonable
or arbitrary.
22. The position of law as formulated in Paramount Polymers
(supra) and Paschimanchal Vidyut Vitaran Nigam Limited (supra)
has been consistently followed by this Court in ensuing decisions. Recently,
in Telangana State Southern Power Distribution Co. Ltd. v.
18 (1998) 4 SCC 470
19 AIR 2007 SC 2
20 (2009) 1 SCC 210
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Srigdhaa Beverages,21 this Court reiterated the judicial thinking on the
liability of subsequent owners with regard to the electricity dues of the
past owners. This Court observed:
“16.1. 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
16.2. 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 doubt that
the liability to pay electricity dues exists on the respondent
(purchaser)
16.3. 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.”
Having set the stage of the legal and decisional framework, we
have been tasked to decide the present batch of appeals.
D. Issues
23. Based on the submissions of the parties, the specific issues
which arise for determination are:
a. Whether the Universal Service Obligation under Section 43 of
the 2003 Act 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
21 (2020) 6 SCC 404
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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?
E. Submissions
24. To put the above-mentioned issues in their proper context, we
refer to the broad legal submission adduced before us by the parties.
I. Electric Utilities
25. Sarvashri M G Ramachandran, Mr Ranjit Kumar, Mr Vijay
Hansaria, Mr. Ajit Bhasme, learned senior counsel appearing for Electric
Utilities have made the following submissions:
a. USO is not absolute
i.
The duty of the licensee to supply electricity under
Section 43 of the 2003 Act is not absolute. Section 43
provides that an applicant has to fulfil the corresponding
obligations to become entitled to the supply of electricity;
ii.
Section 43(1) opens with the words “save as otherwise
provided in the Act”, which brings in compliance with
other provisions of the 2003 Act including Section 50
which empowers the State Commission to specify the
Electricity Supply
Code;
iii.
The Explanation to Section 43(1) requires the applicant
to submit an application complete in all respects along
with documents showing payment of necessary charges
and other compliances. This payment not only includes
application fees, but also includes the charges related
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to supply of electricity; The other compliances would
include due discharge of any pending or outstanding
dues, if so demanded by the licensee; and
iv.
Section 43(2) specifically provides that the applicant
has to fulfil the obligation to pay the price as determined
by the State Commission to demand the supply of
electricity. The term “price” used in Section 43 is the
consideration for the supply of electricity.
b. Supply of electricity is with respect to premises
i.
The supply of electricity is with reference to the
“premises” according to Sections 2(15), 43, 45, and 50
of the 2003 Act. Similar provisions existed in the 1910
Act and 1948 Act. Further, the disconnection dealt in
Section 56 of the 2003 Act and Section 24 of the 1910
Act necessarily relate to identified premises;
ii.
The definition of consumer under Section 2(15) of the
2003 Act includes “any person whose premises are
for the time being connected for the purpose of
receiving electricity with the works of a licensee…”
Hence the expression “premises” is the continued
identified place for supply of electricity, irrespective of
any change in the owner or occupier; and
iii.
The Electric Utilities are required to have an
infrastructure in place for the purposes of supplying
electricity to consumers. They have to incur operation
and maintenance costs to be in readiness to supply
electricity. Therefore, if liability is not fastened to the
premises, such charges would ultimately be borne by
the
general consumers since this would be factored in
the fixation of tariff.
c.
Regulatory regime to recover arrears of electricity dues
i.
Section 49 of the 1948 Act empowers the Electricity
Board to supply electricity upon such terms and
conditions as the Board thinks fit. Under Section 79 of
the 1948 Act, the Board can make regulations not
inconsistent with the Act and the Rules made
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thereunder. In Hyderabad Vanaspathi (supra) this
Court held that terms and conditions of supply framed
by the Electricity Board under Section 49 of the 1948
Act are statutory in character;
ii.
The terms and conditions of supply under the 2003 Act
are framed by independent regulators in terms of Section
50 read with Section 181(2)(x) of the 2003 Act after
following a detailed procedure. Therefore, the Electricity
Supply Code framed by the State Commission is a
subordinate legislation and has a statutory character.
This statutory authority enables the Supply Code to
provide for recovery of dues of the previous owner from
the subsequent owner; and
iii.
The condition of payment of outstanding dues is not a
compulsory extraction of money and does not require a
primary legislation by Parliament or state legislature.
Such a condition can be prescribed by a subordinate
legislation.
d.
Electricity arrears as charge over the premises
i.
i.
It is not the case of the Electric Utilities that there is
any mortgage or charge over the property in the form
that thelicensee is a secured creditor. The licensee has
the right to insist on clearance of outstanding dues of
the premises before giving a new connection.
e.
Civil and Statutory remedies to recover electricity
arrears of the Utilities
(i)
Section 56(2) of the 2003 Act does not bar the recovery
of electricity arrears through other avenues of recovery
in accordance with law;
(ii)
The limitation of two years under Section 56(2) of the
2003 Act is with reference to bar on disconnection by
the licensee. There is no limitation under Section 56
after the electricity is discontinued for non-payment of
dues. A Condition of Supply to recover electricity
arrears is not barred by limitation under Section 56(2)
of the 2003 Act; and
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(iii)
The right of a distribution licensee to deny electricity
connection till outstanding dues are cleared is a
continuing right and cannot be said to be extinguished.
It can be exercised when the new owner or occupier
approaches the licensee for connection.
f. Implication of an auction-sale of premises on “as is where
is” basis
I.
i.
The auction purchasers were put to notice of the
requirement of clearing the dues as the public auction-
sale of the premises on “as is where is” basis would
include a condition of acknowledging all liabilities in
respect of the said premises, with or without specific
reference to the payment of electricity dues;
i.
ii.
There is an obligation on persons acquiring the premises
to verify and obtain a no dues certificate from the
licensee or otherwise factor the dues while quoting the
bid price in the auction; and
ii.
iii.
The purchaser cannot deny knowledge of the
requirement to clear outstanding dues of the premises
when these are provided for in the conditions of supply
or Supply Code.
II. Auction Purchasers
26. Sarvashri Shekhar Naphade, Mr. V Giri, Mr. PS Patwalia,
Mr. S Ganesh, senior counsel, and Mr. Puneet Jain, Mr. Amar Dave,
Mr. EMS Anam, Mr. DN Ray, Mr. T Srinavasa Murthy, Mr. Bharat
Patel, Mr. Ram Lal Roy, Mr. Purvish Jitendra Malkan, and Mr. MY
Deshmukh learned counsel on behalf of the auction purchasers have
urged the following submissions:
a. USO is absolute
i.
(i)
Electricity constitutes goods within the
meaning of
Entries 53, 54, and 56 of List II of the Seventh Schedule
of the Constitution and under the Sale of Goods Act
1930;
ii.
(ii)
The obligation to provide electricity to consumers under
Section 43 of the 2003 Act is not hedged by a condition
K. C. NINAN v. KERALA STATE ELECTRICITY BOARD &
ORS. [DR DHANANJAYA Y CHANDRACHUD, CJI]
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to discharge the arrears incurred by the previous
consumer;
iii.
(iii)
The phrase “price as determined by the appropriate
commission” in Section 43(2) of the 2003 Act could
only be the price at which electricity is supplied to the
distribution licensee. Thus, ‘price’ under Section 43
cannot include the arrears of the previous consumer;
(iv)
The payment of necessary “charges” and “other
compliances” contemplated under Section 43 relates to
the application fees, and cannot be stretched to include
a power to require the payment of third-party arrears;
(v)
The statutory duty of a licensee to supply power on an
application by the owner or occupier of any premises
within one month is contained in Section 43(1) of the
2003 Act. The only exception to this statutory obligation
is provided by Section 44 where the licensee is
prevented from giving supply due to cyclone, floods,
storms or other circumstances beyond his control; and
(vi)
The legislature has consciously inserted all the
substantive requirements which the person making an
application for supply of electricity is required to meet,
which has been primarily captured under Sections 43(2),
45, 46, 47, and 48 of the 2003 Act. Therefore, no power
has been endowed upon the State Commission to impose
any other substantive condition in the form of providing
a precondition of clearance of a previous owners’ dues
on a subsequent owner who seeks a fresh connection.
Any such
condition would be in conflict with Section
43.
b. Supply of electricity is with respect to consumer
(i)
The reference to “premises” in the definition of
“consumer” under Section 2(15) as well as under Section
43 of the 2003 Act is only to fix a situs, that is, to identify
a licensee operating in the area vis-à-vis the property.
The emphasis under Section 2(15) is therefore on the
“person” who is the owner or occupier of the premises;
and
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(ii)
Sections 2(15), 43, and 44 refer to “premises” because
while an ordinary manufacturer or distributor may insist
on the consumer to come to this factory or warehouse
to take the supply of goods, the distribution licensee is
obliged to take the supply to the consumer’s premises.
Therefore, the premises where the supply is to be made
had to be necessarily identified.
c. Regulatory regime to recover arrears of electricity dues
a.
The provisions of the 1910 Act and 1948 Act do not
empower the Electricity Board to recover the electricity
dues of the previous owner or occupier from the new
owner or occupier of such premises. The liability to
pay electricity dues is only on the person to whom the
supply of electricity is made. It is a contractual liability;
b.
Section 49 of the 1948 Act only enables the Board to
prescribe the conditions of supply in a contract to be
entered into with the prospective consumer. Such
conditions of supply cannot be termed as rules or
regulations as they are not published in the official
gazette and therefore, cannot have the character of
regulations and are not statutory in character; and
c.
A condition requiring an applicant to clear the past dues
of a previous consumer before the application for a fresh
connection is considered is manifestly unfair. The arrears
are due to a default committed by a previous consumer
and the negligence of the Electric Utilities which
continued to supply electricity despite default, without
resorting to its power of disconnection.
d.
Subordinate Legislation
a.
The liability of one person, whether statutory or
contractual, cannot be enforced against another person
unless there is a substantive provision in law to do so.
Such enforcement of liability cannot be provided by a
piece of delegated legislation;
b.
Even if it is assumed that such liability can be enforced
by a delegated legislation, the parent law must clearly
K. C. NINAN v. KERALA STATE ELECTRICITY BOARD &
ORS. [DR DHANANJAYA Y CHANDRACHUD, CJI]
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prescribe the power of framing such a piece of
legislation. Neither the 1910 Act nor the 1948 Act
provides any specific provision empowering the
Electricity Board to recover the electricity dues of the
previous owner or occupier of the premises from the
new owner or occupier of premises in question;
c.
The scheme of the 2003 Act, from Sections 43 to 49,
makes it evident that no specific power has been
conferred upon the State Commission under Section 50
read with Section 181 of the 2003 Act or with the State
under Section 180 of the 2003 Act to add further
substantive conditions like clearance of past dues of
another consumer; and
d.
It is a settled principle of law that for framing any rule
or regulation, a specific source of power must be
provided in the parent legislation.
e. Electricity arrears do not constitute a charge over the
premises
a.
Electricity dues do not constitute a charge over property
as they do not run with the land. Only a fiscal levy by
way of statutory exaction could be fastened on land or
any other immovable property. The State Commission
under Section 50 of the 2003 Act can only frame
regulations for supply of electricity and has no power
to provide for any fiscal exaction. Only a state legislation
can provide for a charge on a property by providing for
levy of a duty on consumption or sale of electricity,
under Entry 53 of List II of the Seventh Schedule;
b.
There is no provision under the
2003 Act for creating
charge on the premises and a charge cannot be
introduced by way of Regulations as the subject matter
is not covered under Section 50 of the 2003 Act;
c.
The Conditions of Supply are contractual and therefore
do not constitute a charge under Section 100 of the
Transfer of Property Act 1882. The Conditions of Supply
are contained in a contract and to constitute a charge,
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it must be registered under Section 17 of the Indian
Registration Act 1908; and
d.
Enforcement of a charge against the property in the
hands of the transferee for consideration without notice
of the charge does not arise. Electricity dues are simply
an unsecured debt.
f. Civil and Statutory remedies to recover electricity arrears
of the Utilities
a.
Under Section 56 of the 2003 Act, the right to disconnect
the supply in default of payment is relatable to the default
committed by the defaulting consumer. Electric Utilities
cannot recover dues over and above what is provided
for in the Section 56 (2) of the 2003 Act; and
b.
To the extent that the monies realised from sale of the
company in liquidation were insufficient to clear the
unsecured debts such as electricity dues, they would
abate. The Electric Utilities allowed the dues to mount
up instead of taking effective steps to recover the
dues. Conditions of Supply cannot be used to resurrect
a time-barred debt.
g. Implication of an auction-sale of premises on “as is where
is” basis
(i)
A condition such as “as is where is and whatever there
is” is a feature of physical properties and does not extend
to claims that are not charges, mortgages, or other
encumbrances running with the land; and
(ii)
There was no obligation on the applicants to ascertain
the electricity dues and more so in view of the judgement
in Isha Marbles (supra), which held the field then,
and which continues to hold the field in all cases
where
there is no statutory imposition of liability for past dues
of previous owners on subsequent purchasers.
F. Analysis
I. Universal Service Obligation is not absolute
K. C. NINAN v. KERALA STATE ELECTRICITY BOARD &
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27. The Electric Utilities have argued that the duty to supply
electricity under Section 43 of the 2003 Act is not absolute. It has been
submitted that under Section 43, an applicant has to fulfil the obligation
to pay the ‘price’ as determined by the State Commission to become
entitled to receive supply of electricity. The ‘price’, it is urged, includes
application fees as well as arrears of unpaid electricity dues of the
previous owner or occupier. The Electric Utilities argue that in case
there are outstanding dues of the previous owner they are entitled to
refuse a new connection or decline to commence the supply of electricity
until the dues owed by the previous owner are cleared. On the contrary,
the auction purchasers have urged that Section 43 obligates the distribution
licensees to supply electricity when demanded by the auction purchaser.
It is further urged that the ‘price’ in Section 43 can only mean the price
at which electricity is supplied to the distribution licensee, and cannot
include the arrears of the previous owner or occupier of the premises.
28. To contextualise the submissions of counsel, it is appropriate
to refer to the relevant provisions of the 1910 and 2003 enactments.
Under Section 3 of the 1910 Act, the State Government could grant a
licence to any person to supply energy in any specified area. By virtue
of Section 3(2)(f), the provisions contained in the Schedule stood
incorporated in
the licence. Under Section 22 read with Section 3(2)(f)
and Clause VI of the first Schedule, there was an obligation to supply
electricity on the distribution licensees. Section 22 of the 1910 Act
obligated the licensee to supply energy to every person within the area
of supply on the same terms as those on which any other person in the
same area was entitled. Clause VI provided that the licensee shall supply
energy within one month of a requisition by the owner or occupier of
any premises situated within the area of supply.
29. Section 43 of the 2003 Act is similar to Section 22 of 1910 Act
read with Clause VI of Schedule I of the latter Act. Part VI of the 2003
Act contains provisions dealing with distribution of electricity by
distribution licensees. Section 2(17) defines a ‘distribution licensee’ as a
licensee authorised to operate and maintain a distribution system for
supplying electricity to the consumer in their area of supply. Section 43
of the 2003 Act casts a duty on every distribution licensee to supply
electricity to the premises on an application made by the owner or occupier
of such premises. The provision requires the distribution licensee to lay
down its network in a particular area to supply electricity to a consumer,
who demands supply.
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30. The relevant portion of Section 43 reads as follows:
“43. Duty to supply on request – (1) Save as otherwise provided
in this Act, every 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 the application requiring such supply:
***
Explanation – For the purposes of this sub-section,
“application” means application complete in all respects in
the appropriate form, as required by the distribution
licensee, along with the documents showing payment of
necessary charges and other compliances.
(2) It shall be the duty of every distribution licensee to provide, if
required, electric plant or electric line for giving electric supply to
the premises specified in sub-section (1):
Provided that no person shall be entitled to demand, or to continue
to receive, from a licensee a supply of electricity for any premises
having a separate supply unless he has agreed with the licensee
to pay to him such priceas determined by the Appropriate
Commission.”
(emphasis supplied)
31. According to Section 43, the distribution licensee is obligated
to supply electricity to the premises of an owner or occupier within a
month of the receipt of an application requiring such supply. The provision
casts a duty on the distribution licensee to supply electricity to the owner
or occupier’s premises. Correspondingly, the owner or occupier of the
premises has a right to
apply for and obtain electric supply from the
distribution licensee.22 Both the right and the corresponding duty are
imposed by the statute. The owner or occupier of the premises has to
submit an application to avail of the supply of electricity.
32. In Brihanmumbai Electric Supply & Transport
Undertaking v. Maharashtra Electricity Regulatory Commission,23
a two-judge Bench of this Court observed that the obligation of the
distribution licensee to supply electricity to premises will begin after the
22 Chandu Khamaru v. Nayan Malik, (2011) 12 SCC 314
23 (2015) 2 SCC 438
K. C. NINAN v. KERALA STATE ELECTRICITY BOARD &
ORS. [DR DHANANJAYA Y CHANDRACHUD, CJI]
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owner or occupier of such premises submits a completed application.
The explanation to Section 43 clarifies that the application must be
complete in all respects along with the necessary documents showing
payment of “necessary charges” and other compliances, as required by
the distribution licensee. Thus, under Section 43, the distribution licensee
is obligated to supply electricity to the premises of an owner or occupier,
provided that the owner or occupier pays all charges and complies with
all conditions stipulated by the distribution licensee. Section 43 begins
with the words “Save as otherwise provided in this Act”. Hence, the
operation of Section 43 will also be subject to compliance with the other
provisions of the 2003 Act.
33. Section 45 lays down the manner of computation of the price
to be charged by the distribution licensee for supply of electricity under
Section 43. It provides that a distribution licensee may fix charges for
supply of electricity in accordance with the tariffs fixed from time to
time in accordance with the methods and principles specified by the
concerned State Commission. Under Section 46, a distribution licensee
is empowered to charge from any person who seeks supply of electricity
any expenses reasonably incurred in providing any electric line or electric
plant used for the purpose of giving electricity. Section 47 empowers the
distribution licensee to seek a reasonable security from
any person who
requires supply under Section 43. It further provides that the distribution
licensee can refuse to supply electricity to any person who fails to give
the security deposit. The provision is extracted below:
“47. Power to require security – (1) Subject to the provisions
of this section, a distribution licensee may require any person,
who requires a supply of electricity in pursuance of section 43, to
give him reasonable security, as may be determined by regulations,
for the payment to him of all monies which may become due to
him –
(a) in respect of the electricity supplied to such person; or
(b) where any electricity line or electrical plant or electric meter
is to be provided for supplying electricity to such person, in respect
of the provision of such line or plant or meter,
And if that person fails to give such security, the distribution
licensee may, if he thinks fit, refuse to give the supply of
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electricity or to provide the line or plant or meter for the
period during which the failure continues.”
(emphasis supplied)
34. Section 47 indicates that a distribution licensee can refuse to
supply electricity under Section 43 if the applicant fails to furnish the
requisite security. Under Section 48, a distribution licensee may require
the applicant, who requires a supply of electricity in pursuance of Section
43, to accept (i) any restrictions which may be imposed for the purpose
of enabling the distribution licensee to comply with the regulations made
under Section 53; and (ii) any terms restricting any liability of the
distribution licensee for economic loss resulting from negligence of the
person to whom electricity is supplied. Thus, it is implicit that the
distribution licensee may refuse electricity supply to the applicant until
they accept such terms and restrictions reasonably imposed by the
distribution licensee incidental to the statute.
35. Further, Section 50 empowers the State Commission to specify
an Electricity Supply Code providing for recovery of electricity charges,
among other things. The Electric Utilities have urged that the duty to
supply electricity is subject to the Electricity Supply Code specified under
Section 50. As mentioned in the preceding paragraphs, an applicant is
required to submit a completed application along with documents showing
the payment of necessary charges and other compliances. The Electricity
Supply Code
can stipulate such other compliances that an applicant has
to observe for getting the supply of electricity under Section 43. Therefore,
reading Section 43 along with Sections 45, 46, 47, 48, and 50, it becomes
evident that the right of an applicant to seek supply of electricity under
Section 43 is not absolute. The right is subject to the payment of charges,
security deposit, as well as terms and restrictions imposed by the
distribution licensee.
36. The distribution licensee can stipulate such terms and conditions
as it deems necessary when an owner or occupier of the premises
approaches it seeking the supply of electricity. A two-judge Bench of
this Court in Paschimanchal Vidyut Vitran Nigam (supra) held that a
distribution licensee can stipulate terms and conditions subject to which
it will supply electricity to the applicant which are not arbitrary and
unreasonable.
K. C. NINAN v. KERALA STATE ELECTRICITY BOARD &
ORS. [DR DHANANJAYA Y CHANDRACHUD, CJI]
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37. The auction purchasers have urged that the “charges” levied
by the distribution licensee are explicitly dealt with by Section 45. It was
further urged that Section 45 does not provide that charges should include
the arrears of the previous owner or occupier of the premises. On the
contrary, the distribution licensees have argued that the term ‘price’ used
in Section 43 is the consideration for the supply of electricity as determined
by the State Commission. It has been argued that the arrears of the
previous owner or occupier of the premises is also a ‘price’ determined
by the State Commission and payable at the time of making an application
for the supply of electricity.
38. The words “price”, “tariff”, or “charges” have not been defined
in the 1910 Act or the 2003 Act. In AP TRANSCO v. Sai Renewable
Power (P) Ltd,24 this Court observed that the term “tariff” has neither
been defined nor explained in the 2003 Act. The Court held that in the
absence of any specific definition in the legislation, recourse has to be
taken to the “meaning attached to these expressions under the general
law or in common parlance.”25
39. In BSES Ltd. v. Tata Power Co. Ltd.,26 a two-judge Bench
of this Court interpreted ‘tariff’ in the context of the Electricity Regulatory
Commissions Act, 1998. It observed:
“16. The word “tariff” has not been defined in the Act. “Tariff”
is a cartel of commerce and normally it is a book of rates. It
will
mean a schedule of standard prices or charges provided to the
category or categories of customers specified in the tariff.”
40. The proviso to Section 43(2) further refers to the “price”
payable by an applicant to demand or to continue to receive the supply
of electricity from a distribution licensee. The “price” is to be determined
by the appropriate commission. This “price” is the consideration, as
determined by the State Commission, that an applicant pays for receiving
a supply of electricity.
41. The term “price” has to be given a broad meaning to include
all the ‘tariffs’ and ‘charges’ that may be determined by the appropriate
commission. This includes the ‘charges’ fixed under Section 45 by the
appropriate commission from time to time and the ‘charges’ that a
24 (2011) 11 SCC 34
25 (2011) 11 SCC 34
26 (2004) 1 SCC 195
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distribution licensee may impose under Section 46 to recover any
reasonable expenditure. The ambit of the term ‘price’ is wide enough to
also include the statutory dues that the State Commission decides to
enact by way of regulations under Section 50.
42. Thus, 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.
II. Duty to supply electricity is with respect to consumer
43. The Electric Utilities urge that the duty to supply electricity is
with respect to the premises and not to an individual. They refer to the
definition of ‘consumer’ under Section 2(15) and to Section 43 of the
2003 Act. Further, it was urged that Section 50 and Section 181(2)(x) of
the 2003 Act enable the distribution licensee to provide for payment of
dues of electricity supplied to the premises if a reconnection or new
connection is sought for the same premises. Contrariwise, the auction
purchasers have submitted that the consumption of electricity is always
by the owner or occupier of the premises through appliances and
apparatus installed within the premises. The reference to premises in
the definition of ‘consumer’ under Section 2(15) as well as Section 43 of
the 2003 Act is, it is urged, only to fix a situs for the supply of electricity
to the owner or occupier of the premises.
44. Electricity is a movable good because it can be transmitted,
transferred, delivered, and possessed like any other movable property.27
This position of law was established by a Constitution Bench of this
Court in State of AP v. National Thermal Power Corporation Ltd.28
In Paschimanchal Vidyut Vitaran Nigam (supra) a two-judge bench
of this Court held that the supply of electricity to a consumer is a sale of
goods. The charges paid by the consumer to the distribution licensee is
essentially the price paid for goods supplied and consumed. The
consumption of electricity by a consumer is always effected through
equipment or appliances installed within the premises.
45. Section 2(15) of the 2003 Act defines the expression
‘consumer’ as follows:
27 Commissioner of Sales Tax, Madhya Pradesh, Indore v. Madhya Pradesh Electricity
Board, Jabalpur (1969) 1 SCC 200
28 (2002) 5 SCC 203, paragraph 20.
K. C. NINAN v. KERALA STATE ELECTRICITY BOARD &
ORS. [DR DHANANJAYA Y CHANDRACHUD, CJI]
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“(15) “consumer” means any person who is supplied with
electricity for his own use by a licensee or the Government or
by any other person engaged in the business of supplying electricity
to the public under this Act or any other law for the time being in
force and includes any person whose premises are for the
time being connected for the purpose of receiving electricity
with the works of a licensee, the Government or such other
person, as the case may be;”
(emphasis supplied)
46. The definition of “consumer” under Section 2(15) of the 2003
Act is similar to the definition of “consumer” in the 1910 Act. The definition
consists of two limbs:
(i)
any person who is supplied with electricity for their own use;
and
(ii) any person whose premises are for the time being connected
for the purposes of receiving electricity, irrespective of whether
or not such person is supplied with electricity for his own
use.29
The first limb of the definition is prefaced with “means” while the
second limb is prefaced with “includes”. The definition is thus exhaustive
of the ambit of the expression defined. The inclusive part is intended to
expand the ambit of the initial limb of the definition.
47. In Jivendra Nath Kaul v. Collector/District Magistrate30,
a two judge Bench of this Court held that the meaning of the phrase “for
the time being” means at the moment or the existing position. The
reference to premises in the second limb connotes
that the demand for
guaranteed charges or dues will incur even if the owner or occupier has
stopped consuming power for the time being, but the premises remain
connected. The second limb clarifies that a consumer who commences
receiving power at the premises will continue to remain a consumer
even if they stop consuming power for the time being, so long as the
premises are connected to the power system. The second limb
encompasses a variety of foreseeable and practical situations. For
example, the consumer may have rented out the premises to a tenant. In
29 Uttar Pradesh Power Corporation Limited v. Anis Ahmad, (2013) 8 SCC 491
30 (1992) 3 SCC 576
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this situation, the consumer continues to remain a consumer as the
premises are connected for the time being for the purposes of receiving
the supply of electricity, though the consumer may not themselves be
consuming electricity (the consumption being by the tenant). Here, the
distribution licensee demands charges incurred from the consumer, even
though the electricity is being consumed by the tenant. Another situation
contemplated under the second limb is where the consumer is unable to
consume electricity due to circumstances such as accident or strike. In
this case, as long as the premises of the consumer are connected to the
power system, they will have to pay the demand charges and minimum
guaranteed charges stipulated by the distribution licensee.
48. We are unable to accept the submission of Electric Utilities
that the second limb of Section 2(15) connotes a supply of electricity to
premises, irrespective of a change in the owner or occupier. The 2003
Act provides an inclusive definition of ‘premises’ under Section 2(51).
According to the definition, premises include land, building, or structure.
The second limb goes only so far as to say that when electricity is supplied
to any person at a particular land, building, or structure, such person will
continue to remain a consumer, even though they are not consuming
electricity, so long as the electricity connection exists. The expression
‘premises’ used in the second limb identifies the place where
the supply
of electricity has to be made.
49. It would be material to refer to some other definitions under
the 2003 Act which emphasise that supply of electricity is with respect
to consumer:
“2. Definitions.- In this Act, unless the context otherwise requires,-
***
(17) “distribution licensee” means a licensee authorised to operate
and maintain a distribution system for supplying electricity to
the consumers in his area of supply;
***
(19) “distribution system” means the system of wires and
associated facilities between the delivery points on the transmission
lines or generating station connection and the point of connection
to the installation of the consumers;
***
K. C. NINAN v. KERALA STATE ELECTRICITY BOARD &
ORS. [DR DHANANJAYA Y CHANDRACHUD, CJI]
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(61) “service line” means any electric supply line through which
electricity is, or is intended to be, supplied -
(a) to a single consumer either from a distributing main or
immediately from the Distribution Licensee’s premises; or
(b) from a distributing main to a group of consumers on the
same premises or on contiguous premises supplied from the
same point of the distribution main;
***
(70) “supply”, in relation to electricity, means the sale of
electricity to a licensee or consumer;”
(emphasis supplied)
50. The definition of ‘supply’ specifically states that supply means
the sale of electricity to a consumer. The said definition does not indicate
that supply of electricity is vis-a-vis the premises of the consumer.
Considering the overall scheme of the 2003 Act, the supply of electricity
is to the consumer and not the premises.
51. Section 43 of the 2003 Act obligates a distribution licensee to
supply electricity “on an application by the owner or occupier of any
premises”. Under the provision, the right to obtain a supply of electricity
is vested with the owner or occupier of the premises. Invariably, such
owner or occupier means the consumer under Section 2(15). As held in
Brihanmumbai Electric Supply & Transport Undertaking (supra),
the duty to supply electricity comes into play only on an application made
by the owner or occupier of the premises. Hence, the term “premises”
has to be contextualised and
understood with respect to the preceding
portion, that is, the owner or occupier of the premises.
52. The duty to supply electricity under Section 43 is only with
respect to the owner or occupier of the premises, and not the premises,
as it is the owner or occupier who has the statutory right to “demand”
electricity for the premises under their use or occupation. Further, it is
the applicant who has to fulfil all the statutory conditions laid down under
the 2003 Act to become entitled to get supply of electricity to their
premises. The applicant has to pay the necessary charges and comply
with all terms and conditions as determined by the appropriate commission
for the supply of electricity.
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53. It is true that Sections 43 and 44 of the 2003 Act talk about
supply of electricity to premises. However, the use of such phrases is
borne out of the practical consideration of supply of electricity. Unlike
other goods, a distribution licensee cannot insist that the consumer come
to their factory or warehouse to receive the supply of electricity. The
distribution licensee necessarily has to lay down special infrastructure
such as electricity lines and transformers to transmit electricity and supply
it directly to the consumer, at their premises. On an application, the
distribution licensee is statutorily obliged to supply electricity to the
consumer. Consequently, the place where the supply of electricity is to
be made has to be necessarily identified. Thus, Section 43 and 44 refer
to the consumer’s premises to fix the situs for the purpose of supplying
electricity.
54. Section 56 provides that it is the liability of the consumer to
pay the charge for electricity in respect of the supply of electricity. Under
Section 56 the duty of effecting the payment of charges for electricity is
on a person, that is, the consumer. Further, Section 56(2) specifically
contains the expression “no sum due from any consumer”. Section 126
also uses the words “the electricity charges payable by such person or
any other person benefited by such use.” Thus, the overall scheme of
the 2003 Act makes it evident that only a consumer can be held liable for
default in payment of
electricity dues or charges.
55. Under the 2003 Act, the Central government has enacted
various rules and regulations for carrying out the provisions of the Act.
The government notified the Electricity (Rights of Consumers) Rules,
202031 laying down the rights of the consumers of electricity. The Rules
detail the rights of consumers and obligations of distribution licensees;
release of new connections; metering arrangements; billing and payment;
disconnection and reconnection; grievance redressal mechanism, among
others. The Rules define an ‘applicant’ as an owner or occupier of any
premises who files an application form with a distribution licensee for
supply of electricity. The Rules defines ‘point of supply’ to mean the
point, as may be specified by the State Commission, at which a consumer
is supplied electricity. The Rules make it evident that electricity is supplied
to the consumer.
56. Thus, it is always the consumer who is supplied electricity and
is held liable for defaulting on payment of dues or charges for supply of
31  “Rules”
K. C. NINAN v. KERALA STATE ELECTRICITY BOARD &
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electricity. Perforce, the premises cannot be held to be a defaulter and
no dues can be attached to the premises of the consumer.
III. Whether electricity connection sought by a subsequent
owner constitutes a reconnection or fresh connection
57. Another issue before us, as argued by the counsel, is whether
the connection sought by a subsequent owner constitutes a reconnection
or fresh connection. In IshaMarbles (supra), the Electricity Board had
disconnected electricity supplied to the erstwhile owner pursuant to its
power under Section 24 of the 1910 Act. The Electricity Board insisted
upon the auction purchaser paying the arrears owed by the erstwhile
owner as a condition precedent to provide an electricity connection. The
Board did not place reliance on any statutory conditions of supply. This
Court observed that the law, as it stood then, was inadequate to enforce
such a liability. The Court further held that a connection sought by a
subsequent purchaser should be regarded as a reconnection:
“49.It is important to note that though the purchasers asked
for electricity connection as a new connection it cannot be
regarded as a new connection. It is only a reconnection
since the premises had already been supplied with electrical
energy. Such a supply had been disconnected owing to the
default of the consumer. That consumer had bound himself to
the Board to pay the dues. He also agreed to abide by the condition
as
stipulated in the Act and the Rules including the payment of the
dues.”
(emphasis supplied)
58. This Court further went on to hold that a distribution licensee
cannot make the auction-purchaser liable when seeking reconnection of
electricity supply for the same premises. According to the Court, this
was not feasible considering the fact that “with change of every
ownership new connections have to be issued [which] does not
appear to be the correct line of approach as such situation is brought
by the inaction of the Electricity Board in not recovering the arrears
as and when they fall due or not providing itself by adequate
deposits.” However, this Court also conceded that liability of previous
owners could be fastened on auction-purchasers if the law so prescribed.
59. In Gujarat Inns (supra), another three-judge Bench of this
Court held that the connection sought by auction-purchasers of properties
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would constitute a fresh connection. The Court held that in case of a
fresh connection, the auction purchasers cannot be held liable to clear
the arrears incurred by the previous owners in the absence of any specific
statutory provision. It was observed:
“3. In our opinion, the present two cases are cases of fresh
connection. The learned counsel for the respondents (auction-
purchasers) have stated that they have taken fresh connections
and they have no objection if their connections are treated as
fresh connections given on the dates on which the supply of
electricity was restored to the premises. We are clearly of the
opinion that in case of a fresh connection though the
premises are the same, the auction-purchasers cannot be
held liable to clear the arrears incurred by the previous
owners in respect of power supply to the premises in the
absence of there being a specific statutory provision in that
regard. Though we find some merit in the submission of the
learned counsel for the appellant calling for reconsideration of the
wide propositions of law laid down in Isha Marbles case [(1995)
2 SCC 648] we think the present one is not a case for such exercise.
We leave the plea open for consideration in an appropriate case.”
(emphasis supplied)
60. In Isha Marbles (supra), a three-judge Bench of this Court
held that an application for supply of electricity to the same premises is
to be regarded as a reconnection. This Court, while interpreting the
provisions
of the 1910 Act, gave its reasoning on the assumption that the
supply of electricity is with respect to premises and not the consumer.
However, the 2003 Act has statutorily clarified the position that supply
of electricity is with respect to the consumer. It necessarily follows that
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.
61. We need to highlight that the 2003 Act contemplates a synergy
between the consumer and premises. Under Section 43 of the 2003 Act,
K. C. NINAN v. KERALA STATE ELECTRICITY BOARD &
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the owner or occupier of premises can seek a supply of electricity for
particular premises. Perforce, when electricity is supplied, the owner or
occupier becomes a consumer only with respect to those particular
premises for which electricity is sought and provided. For example, when
a person owning an apartment in a residential complex applies for supply
of electricity to such an apartment, they become a consumer only with
respect to the apartment for which the application is made and to which
electricity is supplied. Such a person may own another apartment to
which electricity may already be supplied, but they will be considered a
separate consumer with respect to the second apartment. For an
application to be considered as a ‘reconnection’, the applicant has to
seek supply of electricity with respect to the same premises for which
electricity was already provided. Even if the consumer is the same, but
the premises are different, it will be considered as a fresh connection
and not a reconnection.
62. In Gujarat Inns. (supra), this Court held that an application
for electricity by an auction-purchaser will constitute fresh connection
even though the premises are the same. The reasoning is based on the
correct assumption that supply of electricity is with respect to the consumer,
and not the premises. 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.
IV. Regulatory power of the Electricity Boards/ State
Commissions
63. The Electric Utilities have submitted that: (i) Section 49 of the
1948 Act empowered the Board to supply electricity upon such terms
and conditions as it thinks fit; (ii) the phrase “regulate” in Section 79 of
the 1948 Act has a wider implication allowing the State Commission to
do everything necessary to prescribe the principles governing the supply
of electricity; (iii) the Electricity Supply Code notified under Section 50
read with Section 181(2)(x) of the 2003 Act governs all matters relating
to the supply of electricity to premises; and (iv) the Conditions of Supply
which provide for payment of outstanding dues of the previous consumer
have a clear nexus to the scheme of the 2003 Act and the objectives
sought to be achieved.
64. From the other side, the auction purchasers have urged that:
(i) the provisions of the 1910 Act, 1948 Act, and the 2003 Act do not
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empower the Electricity Board or, as the case may be the distribution
licencee to recover the arrears of electricity of the previous consumer
from the new owner or occupier of the premises; and (ii) the conditions
of supply prescribed under the 1948 Act do not have the character of
regulations and are not statutory.
65. Section 2(h) of the 1910 Act defined “licensee” as any person
licensed under Part II to supply energy. Section 21 provided that a
distribution licensee shall not interfere with the use of energy by any
person. Section 21(2) empowered the licensee to make conditions for
the purpose of regulating its relations with the consumer with the previous
sanction of the State Government.
66. The 1910 Act did not include the State Electricity Board within
the definition of “licensee”. Section 26 of the 1948 Act states that the
Board shall, in respect of the whole State, have all the powers and
obligations of a licensee under the 1910 Act. The first proviso specified
that certain provisions of the 1910 Act relating to the duties and obligations
of a licensee shall not be applicable to the Board. In its decision in State
of Uttar Pradesh v. Hindustan Aluminium Corporation32 this Court
analysed the interconnection between Section 26 of the 1948 Act and
Section 22 of the 1910 Act. The court held that the obligation under
Section 22 of the 1910 Act to supply energy to every person within the
area of supply is not fastened to the Board. Although Clause VI
of
Schedule to the 1910 Act also mandates the licensee to supply electricity
on demand, the second proviso specifies that the said clause is applicable
to the Board only when the distribution mains have been laid by the
Board and the supply through any of them has commenced.
67. Under Section 21 of the 1910 Act, the Supply Licensee
prescribed conditions with the previous sanction of the state government.
Similarly, the Boards could also prescribe conditions under Section 21 of
the 1910 Act by virtue of Section 26 of the 1948 Act.
68. Section 49 of the 1948 Act read as follows:
“49. Provisions for the sale of electricity by the Board to
persons other than licensees.- (1) 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 licensee
32 (1979) 3 SCC 229
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upon such terms and conditions as the Board thinks fit and
may for the purposes of such supply frame uniform tariffs.”
***
(emphasis supplied)
Under the 1948 Act, the Electricity Boards were empowered to
prescribe terms and conditions of supply under Section 49 read with
Section 79(j). The Board was empowered to fix such terms and conditions
as it thinks fit for supply of electricity to any person not being a licensee.
Section 79 permitted the Board to make regulations providing for the
principles governing the supply of electricity by the Board to persons
other than licensees under Section 49:
“79. Power to make regulations.- The Board may by notification
in the Official Gazette, make regulations not inconsistent with this
Act and the rules made thereunder to provide for all or any of the
following matters, namely:-
***
(j) principles governing the supply of electricity by the Board to
persons other than licensees under section 49;”
Clause (j) of Section 79 empowered the Board to make regulations
prescribing the principles governing the supply of electricity to consumers.
According to Section 79A, any regulation made by the Board had to be
laid before the State Legislature. Thus, the conditions of supply framed
by the Board under section 49 read with section 79 and section 79A
possessed a statutory nature and would be binding on consumers.
69. It has been a consistent position in law that the conditions of
supply
stipulated by the licensees or Boards have a statutory character.33
A two-judge Bench of this Court, in Jagdamba Paper Industries (P)
Ltd v. Haryana State Electricity Board,34 was dealing with a challenge
to the unilateral enhancement of security by the Board under the
agreement with consumers of electric energy. This Court held that the
Board has been conferred with statutory powers under section 49(1) of
the 1948 Act to determine the conditions on the basis of which supply is
to be made. Similarly, in Bihar State Electricity Board v. Parmeshwar
33 Punjab State Electricity Board v. Bassi Cold Storage, Kharar and Another, 1994 Supp
(2) SCC 124
34 (1983) 4 SCC 508
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Kumar Agarwala35, a two-judge Bench of this Court held that the terms
and conditions on which the Board supplies electricity to a consumer
have a statutory character.
70. In Ferro Alloys Corpn. Ltd v. A P State Electricity Board36
a two-judge Bench of this Court upheld the validity of Section 49 of the
1948 Act. The Court observed that the terms and conditions notified
under Section 49 must relate to the object and purpose for which they
were issued. There, the Court upheld the authority of the Board to
prescribe a security deposit in the following terms:
“102. [...] Under the regulations framed by the Board in exercise
of powers of Section 49 read with Section 79(j) the consumer is
only entitled and the Board has an obligation to supply energy to
the consumer upon such terms and conditions as laid down in the
regulations. If, therefore, the regulations prescribed a security
deposit that will have to be complied with. It also requires to be
noticed under Clause VI of the Schedule to the Electricity Act
that the requisition for supply of energy by the Board is to be
made under proviso (a) after a written contract is duly executed
with sufficient security. This, together with the regulations stated
above, could be enough to clothe it with legal sanction.”
71. In Hyderabad Vanaspathi (supra), a three-judge Bench of
this Court had to decide upon the validity of Condition 39 of the “Terms
and Conditions of Supply” prescribing an adjudicatory machinery for
assessing and levying penal damages. This Court considered the legal
provisions under the 1910 Act and 1948 Act to hold that terms and
conditions notified under Section 49 of the latter enactment were valid
and had statutory force. The relevant paragraph is extracted below:
“20. We have already seen that Section 49 of the Supply Act
empowers the Board to prescribe such terms and conditions as it
thinks fit for supplying electricity to any person other than a licensee.
The Section empowers the Board also to frame uniform tariffs
for such supply. Under Section 79(j) the Board could have made
regulation therefor but admittedly no regulation has so far been
made by the Board. The Terms and Conditions of Supply were
notified in BPMs No. 690 dated 17-9-1975 in exercise of the
35 (1996) 4 SCC 686
36 1993 Supp (4) SCC 136
K. C. NINAN v. KERALA STATE ELECTRICITY BOARD &
ORS. [DR DHANANJAYA Y CHANDRACHUD, CJI]
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powers conferred by Section 49 of the Supply Act. They came
into effect from 20-10-1975. They were made applicable to all
consumers availing supply of electricity from the Board. The
Section in the Act does not require the Board to enter into
a contract with individual consumer. Even in the absence
of an individual contract, the Terms and Conditions of
Supply notified by the Board will be applicable to the
consumer and he will be bound by them. Probably in order
to avoid any possible plea by the consumer that he had no
knowledge of the Terms and Conditions of Supply,
agreements in writing are entered into with each consumer.
That will not make the terms purely contractual. The Board
in performance of a statutory duty supplied energy on
certain specific terms and conditions framed in exercise of
a statutory power. Undoubtedly the terms and conditions
are statutory in character and they cannot be said to be
purely contractual.”
(emphasis supplied)
72. The above discussion shows that Conditions of Supply were
notified: first, by the Supply Licensee and Electricity Boards under Section
21 of 1910 Act; and second, by the Electricity Boards under Section 49
of 1948 Act. The decision in Hyderabad Vanaspathi Ltd (supra) is
illustrative of the fact that the courts have upheld the validity of the
Conditions of Supply notified by the Electricity Boards. Significantly, the
decision in Hyderabad Vanaspati Ltd. (supra) holds that
the power of
the Board to formulate terms and conditions under Section 49 of the
1948 Act is distinct from the power to make regulations embodied under
section 79 of the said Act. Therefore, the terms and conditions of supply
notified by the Board under Section 49, although in the nature of
subordinate legislation, were not required to be placed before the State
Legislature under section 79A of the 1948 Act. In that case, it was also
held that statutory conditions could be invalidated only if they were in
conflict with any provisions of the 1948 Act or the Constitution.
73. The auction-purchasers have referred to India Thermal
Power Ltd v. State of MP37 to argue that the conditions of supply are
not statutory, but form a part of the contract between the Electricity
37 (2000) 3 SCC 379
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Board and the consumer. Hence, it was submitted that these contractual
terms cannot be enforced by the Board against the new owner or
occupier of the premises. In India Thermal Power Ltd (supra), the
issue before the two-judge Bench was whether the State Government
can alter the terms of the Power Purchase Agreement entered into under
Sections 43 and 43-A of the 1948 Act. Section 43 empowered the Board
to enter into an arrangement with any person for purchase or sale of
electricity. Section 43-A provided that the tariff for the sale of electricity
by a generating company shall be determined in accordance with the
norms regarding the operation and plant-load factor as determined by
the Central Government from time to time. It was in light of these
provisions, that this Court observed that every provision of an agreement
entered into between a generating company and Electricity Board in
exercise of the enabling power conferred under Sections 43 and 43-A
does not render the entirety of the contract statutory. The relevant
observations are extracted below:
“11. [...] Merely because a contract is entered into in exercise of
an enabling power conferred by a statute that by itself cannot
render the contract a statutory contract. If entering into a
contract containing the prescribed terms and conditions is
a must under the statute then that contract becomes a
statutory contract. If a contract incorporates certain terms
and conditions in it which are statutory
then the said contract
to that extent is statutory. A contract may contain certain other
terms and conditions which may not be of a statutory character
and which have been incorporated therein as a result of mutual
agreement between the parties. Therefore, the PPAs can be
regarded as statutory only to the extent that they contain
provisions regarding determination of tariff and other
statutory requirements of Section 43-A(2). Opening and
maintaining of an escrow account or an escrow agreement are
not the statutory requirements and, therefore, merely because
PPAs contemplate maintaining escrow accounts that obligation
cannot be regarded as statutory.”
(emphasis supplied)
74. We are of the opinion that the reasoning of this Court in India
Thermal Power Ltd (supra) actually supports the arguments of the
Electric Utilities. As evinced from Hyderabad Vanaspathi (supra), the
K. C. NINAN v. KERALA STATE ELECTRICITY BOARD &
ORS. [DR DHANANJAYA Y CHANDRACHUD, CJI]
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conditions of supply enacted by the Boards have a statutory character.
Therefore, any condition enacted under Section 49 of the 1948 Act,
specifically one requiring the new owner to clear the arrears of the
previous owner as a precondition to availing electricity supply, will have
a statutory character. When such a condition is incorporated as part of a
contract, such contract also attains a statutory character and the liability
contained therein becomes a statutory liability, which can be enforced
by the utilities against third parties, including the new owners of the
premises in question.
75. The next question that comes up for consideration is whether
the Electric utilities can enact a condition providing for recoupment of
electricity arrears of a previous owner from the new owner. Under the
1948 Act, the Board could enact terms and conditions for the supply of
electricity under Section 49 read with Section 79(j). This Court has held
on many occasions that the term ‘regulate’ is to be given a wide
interpretation allowing the performance of everything necessary for the
organised implementation, development, and conduct of business. In
Deepak Theatre v. State of Punjab38 a three-judge Bench of the
Supreme Court held that the power to regulate implies the power to
prescribe and enforce all such proper and reasonable rules necessary
for conduct of business. It was held:
“3. It is settled law that the rules validly made
under the Act, for
all intents and purposes, be deemed to be part of the statute. The
conditions of the licence issued under the rules form an integral
part of the statute. The question emerges whether the word
regulation would encompass the power to fix rates of admission
and classification of the seats. The power to regulate may include
the power to license or to refuse the licence or to require taking
out a licence and may also include the power to tax or exempt
from taxation, but not the power to impose a tax for the revenue
in rule making power unless there is a valid legislation in that
behalf. Therefore, the power to regulate a particular business
or calling implies the power to prescribe and enforce all
such proper and reasonable rules and regulations as may
be deemed necessary to conduct the business in a proper
and orderly manner. It also includes the authority to
prescribe the reasonable rules, regulations or conditions
38 1992 Supp (1) SCC 684
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subject to which the business may be permitted or
conducted. A conjoint reading of Section 5, Section 9, Rule 4 and
condition 4-A gives, therefore, the power to the licensing authority
to classify seats and prescribe rates of admission into the cinema
theatre.”
(emphasis supplied)
76. In K Ramanathan v. State of Tamil Nadu39 a three-judge
Bench of this Court held that the word “regulation” does not have a rigid
or inflexible meaning. This Court observed that “power to regulate carries
with it full power over the thing subject to regulation and in absence of
restrictive words, the power must be regarded as plenary over the entire
subject.” The Constitution Bench in V S Rice and Oil Mills v. State of
Andhra Pradesh40 also observed that the word “regulate” is of wide
import.
77. The above analysis must guide the interpretation of Section
49 read with Section 79(j) of the 1948 Act which empowered the Board
to enact such terms and conditions as the Board thinks fit. This power of
the Board would extend to enacting conditions providing for recovery of
dues of the erstwhile owner from the new owner as a precondition for
supply of electricity. Further, this Court has consistently upheld the
Conditions of Supply providing for recoupment of arrears of a previous
owner from the new owner as a pre-condition for supply of electricity. A
two-judge bench of this Court in Haryana State Electricity Board v.
Hanuman Rice Mills, Dhanauri41, while summarising the position of
law laid down in ParamountPolymers (supra) and Paschimanchal
Vidyut Vitran Nigam Ltd. (supra), observed that the supplier can recover
the arrears of electricity dues of the previous owner or occupier from
the purchaser of the property if the statutory rules or terms and conditions
of supply which are statutory in character authorise the same:
“12. The position therefore may be summarised thus:
(i) Electricity arrears do not constitute a charge over the property.
Therefore in general law, a transferee of a premises cannot be
made liable for the dues of the previous owner/occupier.
39 (1985) 2 SCC 116
40 (1964) 7 SCR 456
41 (2010) 9 SCC 145
K. C. NINAN v. KERALA STATE ELECTRICITY BOARD &
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(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.”
(emphasis supplied)
78. In Paramount Polymers (supra), a two-judge Bench of this
Court was called upon to decide the validity of clause 21-A of Terms
and Conditions of Supply which provided that no fresh connection in
respect of the premises would be given to a purchaser unless the purchaser
cleared the amount that was left in arrears by the previous consumer.
The Court held that it was within the power of the Electricity Board to
insert clause 21-A in the Terms and Conditions of Supply under section
49 of the Supply Act:
“15. […] Under Section 49 of the Supply Act, the licensee or
rather, the Electricity Board, is entitled to set down the Terms and
Conditions of Supply of electrical energy. In the light of the power
available to it, also in the context of Section 79(j) of the Supply
Act, it could not be said that the insertion of clause 21-A in
the Terms and Conditions of Supply of electrical energy is
beyond the power of the appellant.”
(emphasis supplied)
79. As regards the 2003 Act, the Electric Utilities submit that
Section 50
read with Section 181(2)(x) authorises the State Commission
to frame the conditions governing Electricity Supply enabling recovery
of electrical charges, including the electricity arrears of the previous
owner from the new owner. The auction purchasers concede that Section
50 of the 2003 Act is exhaustive, but contend that it does not enable the
State Commission to lay down conditions for recovery of electricity
arrears of the previous owner. To comprehensively analyse the above
submission, it is necessary to refer to the relevant provisions under the
2003 Act.
80. Section 2(24) of the 2003 Act defines “Electricity Supply Code”
to mean the Electricity Supply Code specified under Section 50. Section
50 reads as follows:
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“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 tampering, distress or damage to electric plant or
electrical line or meter, entry of distribution licensee or any person
acting or 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.”
(emphasis supplied)
81. Section 50 of the 2003 Act specifies that the State Commission
shall specify an Electricity Supply Code. Section 2(64) defines “State
Commission” as the State Electricity Regulatory Commission constituted
under Section 82(1). The State Commission is authorised to notify the
Electric Supply Code under section 181(2)(x). The use of expressions
such as “recovery of electricity charges”, “disconnection of supply”,
“restoration of supply”, under Section 50 indicate that the scope of the
regulatory powers of the State Commission under the said provision is
wide enough to govern all matters relating to the supply of electricity to
the premises.
82. The 2003 Act lays down the legislative framework for
generation, transmission, distribution, trading, and use of electricity in
India. In the process, the Parliament has also
conferred discretion on
the regulatory authorities, particularly the Central Commission and State
Commission, to work out further details within the framework of the
legislative policy laid down in the legislation. While making subordinate
legislation, the delegated authority has to act within the confines of the
plenary legislation.42 The rules or regulations enacted by the Central
Commission or State Commission cannot override the 2003 Act by
stipulating inconsistent provisions or by supplanting the parent statute.
83. The 2003 Act empowers the State Commission to make
regulations on matters specified under Section 181(2). In PTC India
Ltd. v. Central Electricity Regulatory Commission43 a Constitution
Bench of this Court held that regulations can be framed by State
42 JK Industries Ltd. v. Union of India, (2007) 13 SCC 673
43 (2010) 4 SCC 603
K. C. NINAN v. KERALA STATE ELECTRICITY BOARD &
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Commissions so long as they satisfy two conditions: first, they must be
consistent with the provisions of Act; and second, they must be made
for carrying out the provisions of the Act. The Court held:
“28. The 2003 Act contemplates three kinds of delegated
legislation. Firstly, under Section 176, the Central Government is
empowered to make rules to carry out the provisions of the Act.
Correspondingly, the State Governments are also given powers
under Section 180 to make rules. Secondly, under Section 177,
the Central Authority is also empowered to make regulations
consistent with the Act and the rules to carry out the provisions of
the Act. Thirdly, under Section 178, the Central Commission can
make regulations consistent with the Act and the rules to carry
out the provisions of the Act. SERCs have a corresponding power
under Section 181. The rules and regulations have to be placed
before Parliament and the State Legislatures, as the case may be,
under Sections 179 and 182. Parliament has the power to modify
the rules/regulations. This power is not conferred upon the State
Legislatures. A holistic reading of the 2003 Act leads to the
conclusion that regulations can be made as long as two
conditions are satisfied, namely, that they are consistent
with the Act and that they are made for carrying out the
provisions of the Act.”
(emphasis supplied)
84. The scheme of the 2003 Act makes it evident that the
regulatory powers
of the State Commission under section 181(2) are of
wide import. The Commission has certain plenary powers to regulate on
matters contained in section 181(2), including Electric Supply Code under
Section 50. Accordingly, the Commission can notify a Supply Code
governing all the matters pertaining to supply of electricity such as
“recovery of charges”, “disconnection of supply” and “restoration of
supply”. In our opinion, such an authority also extends to stipulating
conditions for recovery of electricity arrears of previous owners from
new or subsequent owners.
85. In Paschimanchal Vidyut Vitran Nigam (supra), a two-judge
Bench was considering the legality of the actions of the appellant licensee
to recover electricity dues from the purchaser of subdivided plots. Clause
4.3 of the Uttar Pradesh Electricity Supply Code stipulated that a new
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connection to subdivided premises shall be given only after the share of
the outstanding dues attributed to such premises is duly paid by the
applicant. This Court held that a distribution licensee can stipulate such
terms necessary for supply of electricity, including that the arrears due
in regard to the supply of electricity made to the premises when they
were in the occupation of the previous owner or occupant, should be
cleared before the electricity supply is restored or a fresh connection is
provided to the premises. Therefore, a condition enabling the distribution
licensee to insist on the clearance of the arrears of electricity dues of
the previous consumer before resuming electricity supply to the premises
is valid and permissible under the scheme of the 2003 Act.
86. The next question that arises for consideration is whether a
regulation providing for recouping the arrears of a previous consumer
from the subsequent owner has a reasonable nexus with the provisions
of the 2003 Act. Section 42 of the 2003 Act requires the distribution
licensee to develop and maintain an efficient, coordinated, and economical
distribution system in their area of supply to supply electricity in
accordance with the provisions of the said Act. A distribution licensee is
an intermediary, performing the function of conveying supply of electricity
from generating companies to the consumer, at their premises. In order
to provide a supply of electricity to consumers, a
distribution licensee is
required to lay down infrastructure such as electricity lines, transformers,
and other equipment. The nature of the supply of electricity also depends
upon the type of consumer as well their needs. The licensee has to
make a significant capital outlay for creating the necessary infrastructure
as well as operation and maintenance costs to keep the infrastructure in
readiness according to Section 42. The licensees are required to maintain
the infrastructure even if the consumer does not consume electricity.
They are also required to pay the salaries of their employees and pay
the dues of electricity generation and transmission companies.
87. The 2003 Act has been enacted to promote the development
of the electricity industry as well as to protect the interests of the
consumers and to ensure the supply of electricity to all areas. The Supply
Conditions providing for recoupment of electricity dues of a previous
consumer from a new owner are necessary to recover the costs incurred
for laying down the infrastructure as well as the ongoing current liabilities
towards the electricity generation and transmission companies. In the
absence of such conditions, it may be difficult for the distribution licensees
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to recover defaulted payments, adding to the revenue deficits. This may
adversely impact the financial health of the distribution licensees to the
detriment of the interests of the consumers.
88. In Paschimanchal Vidyut Vitran Nigam (supra), this Court
observed that a condition stipulating that the distribution licensee can
recover the electricity dues from the new owner or occupier was
necessary to safeguard the interests of the distributor. It was observed:
“13.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. Having
regard to the very large number of consumers of electricity and
the frequent moving or translocating of industrial, commercial and
residential establishments, provisions similar to Clauses 4.3(g) and
(h) of the Electricity Supply Code are necessary to safeguard the
interests of the distributor.”
(emphasis supplied)
89. Electricity constitutes a public good. The Court’s interpretation
of the law must
foster this position. In Hyderabad Vanaspati (supra)
this Court was adjudicating upon the validity of Clause 39 of the Conditions
of Supply which defined various malpractices and provided for enquiries
by designated officials. This Court observed that it was the statutory
duty of the Board to supply, transmit, and distribute electricity throughout
the state in the most efficient and economical manner. It was further
observed that terms and conditions such as Clause 39 were necessary
to prevent unauthorised use, pilferage or malpractices by the consumers.
Such terms were necessary to recoup the loss suffered by pilferages,
and to stop the continuation of similar malpractices.
90. Apart from protecting a public good, such conditions also have
a reasonable nexus with objects of the 2003 Act, such as a robust
development of the electricity industry, protecting the interests of
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consumers as well as the financial interests of the distribution licensees.
The need to protect the financial interests of distribution licensees has
been explicitly recognized in Section 61 of the 2003 Act which empowers
the Appropriate Commission to specify the terms and conditions for the
determination of tariff in accordance with commercial principles. The
relevant part of the Section 61 reads as follows:
“61. Tariff regulations.- The Appropriate Commission shall,
subject to the provisions of this Act, specify the terms and conditions
for the determination of tariff, and in doing do, shall be guided by
the following, namely:-
***
(b) the generation, transmission, distribution, and supply of
electricity are conducted on commercial principles;
***
(d) safeguarding of consumers’ interests and at the same
time, recovery of the cost of electricity in a reasonable
manner;”
(emphasis supplied)
91. The Conditions of Supply and Electricity Supply Code which
require the payment of electricity dues of a previous owner as a condition
for the grant of an electricity connection have a clear nexus to the scheme
of the parent legislations and the objectives sought to be achieved. It is
just and reasonable for distribution licensees to specify conditions of
supply 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.
V. Whether arrears of electricity can become a charge or
encumbrance over the premises
92. The next issue that arises for our consideration is whether
arrears of electricity can become a charge or encumbrance over the
premises. An ancillary issue is whether such arrears can become a charge
on the property only through an express provision of law. Before we
embark upon our analysis, we clarify that it is unnecessary to deal with
the submission of the auction purchasers regarding registration under
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Section 17 of the Indian Registration Act 1908 for the conditions of
supply contained in a contract to constitute a charge. The decision of
this court in M.L. Abdul Jabbar Sahib v. M.V. Venkata Sastri &
Sons,44 was limited to the extent that it holds that a charge created by
an act of parties under Section 100 of the Transfer of Property Act 1882
does not attract the provisions of Section 59 of the Indian Registration
Act 1908.
93. The contention of the auction purchasers is that arrears of
electricity are not a charge on property as they do not run with the land.
They have relied on the decision in Ahmedabad Municipal
Corporation v. Haji Abdulgafur Haji Hussenbha45 to submit that
enforcement of a charge against the property in the hands of a transferee
for value without notice of the charge does not arise, and electricity
dues are simply an unsecured debt. On the other hand, the Electric Utilities
submit that it is not even their case — in the absence of an express
provision of law — that there is any mortgage or charge over the property
in the form that the licensee would be a secured creditor.
94. Section 100 of the Transfer of Property Act 1882 contemplates
two types of charges: charges created by act of parties and charges
arising by operation of law. It inter alia provides as follows:
“100. Charges:Where immoveable property of one person
is by act of parties or operation of law made security for the
payment of
money to another, and the transaction does not
amount to a mortgage, the latter person is said to have a
charge on the property; and all the provisions hereinbefore
contained 1[which apply to a simple mortgage shall, so far as may
be, apply to such charge].
Nothing in this section applies to the charge of a trustee on the
trust property for expenses properly incurred in the execution of
his trust, [and, save as otherwise expressly provided by any
law for the time being in force, no charge shall be enforced
against any property in the hands of a person to whom such
property has been transferred for consideration and without
notice of the charge.”
(emphasis supplied)
44 (1969) 1 SCC 573
45 (1971) 1 SCC 757
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95. An encumbrance means a burden or charge upon property or
a claim or lien upon an estate or on the land. Encumbrance must be a
charge on the property, which must run with the property. In terms of
the first paragraph of Section 100, when an immovable property of one
party is pledged as security for the payment of money to another, and
the transaction does not constitute a mortgage, the latter would acquire
a charge over the property. All provisions that apply to a simple mortgage
are applicable to a charge. A charge is neither a sale nor a mortgage
because it creates no interest in or over an immovable property but it is
only a security for the payment of money.46 In other words, a charge
only results in the creation of a right of payment out of the property
towards the satisfaction of the debt or obligation in question.
96. The second paragraph of Section 100 provides an exception
to the general proposition that a charge runs with the land and can be
enforced even if the property has passed into the hands of a third party.
It provides that a charge cannot be enforced against a property in the
hands of a transferee without notice. The words “save as otherwise
expressly provided by any law for the time being in force” indicate
that a charge can be enforced against a transferee without notice when
an express provision of law exists. Hence, a charge cannot be enforced
against a transferee if they have no notice of the same, unless the
requirement of such
notice has been dispensed with by law.47
97. In AI Champdany Industries Ltd. v. Official Liquidator,48
this Court held that such a provision of law should not merely create a
charge, but it must expressly provide for the enforcement of a charge
against the property in the hands of a transferee for value without notice
of the charge.
98. In Haji Abadulgafur Haji Husseinbhai (supra), this Court
considered the doctrine of constructive notice as provided under Section
100. In that case, the Municipal Corporation had a charge on the property
of a person who was in arrears of property tax. An auction purchaser,
who became the owner of the property, resisted the attempt of the
Municipal Corporation to recover the arrears of pending taxes in exercise
of its charge on the ground that they were not aware of the past municipal
46 Dattatreya Shanker Mote v. Anand Chintaman Datar & Ors, (1974) 2 SCC 799
47 Dattatreya Shanker Mote v. Anand Chintaman Datar, (1974) 2 SCC 799; State of
Karnataka v. Shreyas Papers Pvt. Ltd, 2006 (1) SCC 615
48 (2009) 4 SCC 486
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tax arrears. The Corporation argued that the transferee was imputed
with constructive knowledge of the charge created against the property
due to Section 141 of the Bombay Provincial Municipal Corporations
Act 1949. The Court held against the Municipal Corporation on the ground
that in the facts of the case, the plaintiff did not have constructive notice
of the arrears of municipality.
99. While explaining the purport of Section 100, this Court held
that the second half of Section 100 enacts a general prohibition and no
charge can be enforced against property in the hands of a transferee for
consideration without notice of the charge. In terms of Section 100, an
exception to this rule must be expressly provided by law. The Court held
that whether a transferee has actual or constructive notice which satisfies
the requirement of notice in the proviso to Section 100, must be determined
in the facts and circumstances of each case. This Court observed:
“4. This section in unambiguous language lays down that no
charge is enforceable against any property in the hands of a
transferee for consideration without notice of the charge except
where it is otherwise expressly provided by any law for the time
being in force. The saving provision of law must expressly provide
for enforcement of a charge against the property in the hands of
a transferee for value without notice of the charge and not merely
create a charge. …… The real
core of the saving provision of
law must be not mere enforceability of the charge against the
property charged but enforceability of the charge against the said
property in the hands of a transferee for consideration without
notice of the charge. Section 141 of the Bombay Municipal Act is
clearly not such a provision. The second contention fails and is
repelled.”
100. Counsel for the Electric Utilities have not referred to any
provision in the plenary legislation of the 2003 Act by which electricity
dues would constitute a charge on the premises. The provisions of the
1910 Act, 1948 Act, and the 2003 Act do not provide that the arrears of
electricity dues would constitute a charge on the property or that such a
charge shall be enforceable against a transferee without notice.It is
pertinent to note that this Court has reiterated that arrears of electricity
cannot become a charge or encumbrance over the premises, in the
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absence of an express provision of law in the 1910 Act, 1948 Act or
2003 Act.49
101. In Isha Marbles (supra), this Court observed that under the
provisions of 1910 Act read with 1948 Act, electricity arrears do not
create a charge over the property. It observed:
“56. From the above it is clear that the High Court has chosen to
construe Section 24 of the Electricity Act correctly. There is no
charge over the property. Where that premises comes to
be owned or occupied by the auction-purchaser, when such
purchaser seeks supply of electric energy he cannot be
called upon to clear the past arrears as a condition
precedent to supply. What matters is the contract entered
into by the erstwhile consumer with the Board. The Board
cannot seek the enforcement of contractual liability against
the third party. Of course, the bona fides of the sale may not be
relevant.”
102. Similarly, in Paschimanchal Vidyut Vitran Nigam (supra),
this Court held that in the absence of any contract to the contrary, the
amount payable towards supply of electricity does not constitute a charge
on the premises.
103. Consequently, in general law, a transferee of the premises
cannot be made liable for the outstanding dues of the previous owner
since electricity arrears do not automatically become a charge over the
premises. Such an action is permissible only where the statutory
conditions of supply authorise the recovery of outstanding electricity
dues from a subsequent purchaser claiming
fresh connection of electricity,
or if there is an express provision of law providing for creation of a
statutory charge upon the transferee.
104. The next issue which falls for consideration is whether an
electricity charge can be introduced by way of statutory regulations or
rules enacted by a regulatory commission under its rule making power in
the 2003 Act.
105. Counsel for the auction purchasers have relied on Deputy
Commercial Tax Officer, Park Town Division v. Sha Sukhraj
Peerajee,50 and Indian Council of Legal Aid and Advice v. Bar
49 1995 SCC (2) 648; AIR 2007 SC 2; (2010) 9 SCC 145
50 AIR 1968 SC 67
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Council of India,51 to argue that a charge cannot be introduced by way
of regulations as the subject matter is not covered under Section 50 of
the 2003 Act. It was further contended that only a fiscal levy by way of
statutory exaction could be fastened on land. In the context of electricity,
it was urged that a state legislation can provide for a charge on property
only by providing for levy of a duty on consumption or sale of electricity.
Relying on India Cement Ltd & Ors v. State of Tamil Nadu52 and Al
Champdany Industries v. Official Liquidator53, it has been argued
that only such a fiscal exaction would get attached to the land.
106. The subject of taxes on the consumption or sale of electricity
within the State falls under Entry 53, List II of the Seventh Schedule of
the Constitution. A number of States have enacted legislations providing
for the levy of electricity duty on consumption or supply of electricity. In
these instances, the legislature specifically provides that the duty payable
under the state legislation shall be a first charge on the amount recoverable
by the licensee for the electrical energy supplied. Further, the manner in
which such charges are to be realised from the consumer is provided for
in the state legislation and relevant subordinate legislation. For example,
the Kerala Electricity Duty Act 1963 and Kerala Electricity Duty Rules
1963 provide that the dues from a consumer towards
electricity duty
create a first charge on the amounts recoverable for the energy consumed.
107. However, Entry 53 of List II of the Seventh Schedule does
not have any bearing on the issues involved in this batch of cases. This
is because neither is any tax levied under Article 265 of the Constitution
nor is any levy imposed. It is not the case of the distribution licensees
that the State Commission under Section 50 of the 2003 Act has the
power to provide for fiscal exactions.
108. A subordinate rule or regulation, as in the case of the Electricity
Supply Code framed by a regulatory commission, can provide for a
statutory charge to be fastened on the premises within which consumption
of electricity was effected. In terms of Section 50 of the 2003 Act, a
State Commission is empowered 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
and other cognate matters. In terms of Section 181 of the 2003 Act, the
51 1995 (1) SCC 732
52 (1990) 1 SCC 12
53 (2009) 4 SCC 486
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State Commission is empowered to make regulations and rules consistent
with the Act which carry out the provisions of the Act. As held in the
preceding paragraphs, the rule making power contained under Section
181 read with Section 50 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 State
Commission is conferred with wide powers under the statutory framework
to provide for different mechanisms in the Electricity Supply Code for
recovery of electricity arrears of the previous owner. The recovery of
electricity arrears may take effect either by requiring a subsequent owner
of premises to clear payment of outstanding dues as a condition precedent
for an electricity connection, or by deeming that any amount due to the
licensee shall be a first charge on the assets, or by any other reasonable
condition.
109. In exercise of such power, Regulation 10.5 of the
Maharashtra Electricity Supply Code 2005 provides that any charge for
electricity or any other sum which remains unpaid by an erstwhile owner
constitutes a charge on the property and can be recovered from the
transferee subject to the permitted period specified therein. This provision
spelt out in the present judgement is a mere illustration of a subordinate
rule wherein unpaid electricity dues constitute a charge on property and
can be recovered from a subsequent transferee.
110. Reliance by the auction purchasers on the decisions in India
Cement Ltd (supra) or Indian Council of Legal Aid and Advice
(supra) render little assistance to their cause. The question in India
Cement Ltd (supra)was whether the State Legislature had competence
to enact a cess on royalty on mineral rights under Article 246 read with
Entry 49 of List II of the Seventh Schedule. In Indian Council of Legal
Aid and Advice (supra),this Court dealt with Rule 9 in Chapter III of
Part VI of the Bar Council of India Rules, which barred persons who
have completed 45 years of age from enrolment as an advocate. Both
these decisions bear little relevance to the issue which has arisen in the
present appeals.
111. The auction purchasers have also relied on the decision in
Sha Sukhraj Peerajee (supra). This Court held that Rule 21-A framed
by the State Government under Section 19 of the Madras General Sales
Tax Act, 1939 was ultra vires. In terms of Rule 21-A, a purchaser of a
business carried on by a ‘dealer’ could be made liable for arrears of
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sales tax due from the dealer in respect of transactions of sale which
took place before the transfer. This Court held that the rule making
power under Section 19 could not be used to enlarge the scope of recovery
and payment of tax from some person other than a ‘dealer’ under the
Act. Section 10, inserted by the Amendment Act of 1956, provided that
the outstanding amount on the date of default was made a charge on the
property of the person liable to pay tax. This Court did not consider the
import of Section 10 of the Act since the business was transferred before
the amending Act came into force. The ratio of the case is neither helpful
nor applicable in the instant case, since this Court was dealing with the
specific provisions of the Madras General Sales Tax Act 1939.
112. The provisions of the statute and statutory conditions of supply
need to be examined to determine whether the conditions of supply
provide for the creation of a charge in terms of Section 100 of the Transfer
of Property Act, 1882. Once it is established that a statutory charge is
created and required notice was given, the charge attaches to the property
and the licensee is entitled to recover the unpaid electricity dues by
proceeding against the premises. Consequent to the charge created,
Article 62 of the Indian Limitation Act, 1963 would come into play. Article
62 of the Limitation Act relates to enforcing the payment of money
procured by
mortgaged or otherwise charged upon the immoveable
property. The electricity utilities would get a period of twelve years to
recover the dues charged on the immoveable property from the date
when the money payable became due.
113. In light of the above discussion, we are of the opinion that the
electricity utilities can create a charge by framing subordinate legislation
or statutory conditions of supply enabling recovery of electricity arrears
from a subsequent transferee. Such a condition is rooted in the importance
of protecting electricity which is a public good. Public utilities invest
huge amounts of capital and infrastructure in providing electricity supply.
The failure or inability to recover outstanding electricity dues of the
premises would negatively impact the functioning of such public utilities
and licensees. In the larger public interest, conditions are incorporated in
subordinate legislation whereby Electric Utilities can recoup electricity
arrears. Recoupment of electricity arrears is necessary to provide funding
and investment in laying down new infrastructure and maintaining the
existing infrastructure. In the absence of such a provision, Electric Utilities
would be left without any recourse and would be compelled to grant a
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fresh electricity connection, even when huge arrears of electricity are
outstanding. Besides impacting on the financial health of the Utilities,
this would impact the wider body of consumers.
VI. Implication of Section 56(2) on recovery of electricity
dues by Electric Utilities
114. The Electric Utilities have submitted that Section 56 of the
2003 Act only deals with the right of the licensee to disconnect supply.
Explaining the scope of the relevant provision, it has been submitted that
Section 56 sets out different timelines, namely (a) when the disconnection
can be made i.e., when payment of charges is not made after giving
requisite notice; (b) how long the disconnection can be maintained i.e.,
so long as the outstanding dues remain; and (c) when it is to be restored
i.e., immediately when the outstanding dues are paid. Reliance has been
placed on Ajmer Vidyut Vitran Nigam Limited v. Rahamatullah
Khan,54 and M/s Prem Cortex v. Uttar Haryana Bijli Vitran Nigam
Limited55 to contend that the use of the expression “under this section”
in Section 56(2) means that the avenue of effecting disconnection to
recover money cannot be resorted to after the limitation period. It is
further contended that Section 56 does not bar the recovery of pending
charges through other avenues of recovery in accordance with law. The
licensees urge that civil remedies and statutory power to recover
electricity can be utilised simultaneously. It was urged that Section 56
does not
restrict the right of the licensee to insist on payment of the
arrears of charges incurred on the premises, from a subsequent applicant
for a fresh connection to the same premises.
115. On the implication of the two-year limitation period under
Section 56(2), it is submitted that (i) the limitation is with reference to
the bar on disconnection by the licensee; (ii) no limitation is provided
under Section 56 after the electricity is discontinued for non-payment of
dues; (iii) a valid and subsisting money decree in favour of the Electricity
Board against the erstwhile owner of the premises would not be affected
by the limitation period of two years; (iv) no time limit has been provided
ÿþfor cessation of the right of the licensee to demand past dues for
giving a new connection to the premises; and (v) the right of the licensee
not to give a connection till the outstanding dues are cleared is a continuing
right and cannot be said to be extinguished.
54 (2020) 4 SCC 650
55 Judgment dt. 5.10.2021 in CA 7235 of 2009
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116. On the other hand counsel representing the auction
purchasers have urged that (i) the period of limitation under Section
56(2), which begins with a non obstante clause, bars the recovery of
outstanding electricity dues from successful auction purchasers who apply
for a new connection for the supply of electricity from the licensee; (ii)
two conditions need to be fulfilled to get over the embargo on the recovery
of a sum due from any consumer, after a period of two years from the
date when such sum became first due, namely (a) such sum has been
shown continuously as recoverable as arrears of charges for electricity
supplied, and (b) the licensee shall not cut off the supply of the electricity;
(iii) the conditions of supply, being subordinate legislation, cannot override
the duty cast upon the licensee, and dues cannot be recoverable either in
a manner or over and above what is provided for in the Section 56 (2);
and (iv) any alternative interpretation would render the bar under Section
56(2) meaningless, and the conditions of supply could be used to resurrect
time barred claims as held in State of Kerala v. VT Kallianikutty.56
117. The power to discontinue supply to a consumer is dealt with
in Section 56 of the 2003 Act. The provision is extracted below:
“Section 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:
Provided that the supply of electricity shall not be cut off if such
person deposits, under protest, -
56  (1999) 3 SCC 657
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(a) an amount equal to the sum claimed from him, or
(b) the electricity charges due from him for each month
calculated on the basis of average charge for electricity paid
by him during the preceding six months, whichever is less,
pending disposal of any dispute between him and the licensee.
(2) Notwithstanding anything contained in any other law for
the time being in force, no sum due from any consumer, under
this section shall be recoverable after the period of two
years from the date when such sum became first due unless such
sum has been shown continuously as recoverable as arrear of
charges for electricity supplied and the licensee shall not cut off
the supply of the electricity.”
(emphasis supplied)
118. Section 56 falls under Part VI which is titled “Distribution of
Electricity”. Section 56 provides for disconnection of electrical supply in
case there is a default in payment of electricity charges.
119. The power to disconnect is a drastic step which can be
resorted to only when there is a neglect on the part of the consumer to
pay the electricity charges or dues owed to the licensee or a generating
company, as the case may be. Section 56(1) provides that 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 a generating
company, the licensee or generating company may after giving a written
notice of fifteen days, disconnect the supply of electricity, until such
charges, including the expenses incurred are paid. The power to
disconnect electricity is conditioned on the fulfilment of the conditions
stipulated. The cutting off or disconnection is without prejudice to the
rights of the distribution licensee to recover such charge or other sums
by other permissible modes of recovery. The proviso to Section 56(1)
carves out an exception by providing that electricity supply will not be
cut off if the consumer, “under protest”, either deposits the amount claimed
or deposits the average charges paid during the preceding six months.
120. The statutory right of the licensee or the generating company
to disconnect the supply of electricity is subject to the period of limitation
of two years provided by Section 56(2). Section 56(2) provides that
notwithstanding anything contained in any other law for the time being in
force, no sum due from any consumer “under this section” shall be
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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. The limitation of two years is
limited to recovery of sums under Section 56. This is evident by the use
of the expression, “under this section”.
121. The first issue pertains to the simultaneous exercise of
statutory and civil remedies by the licensing authority to recover electricity
arrears. The liability to pay electricity charges is a statutory liability and
Section 56 provides the consequences when a consumer neglects to pay
any charge for electricity or any sum other than a charge for electricity
due from him. Section 56(1) provides that the power of the licensee to
disconnect electrical supply when a consumer is in default of payment is
“without prejudice to his rights to recover such charge or other sum by
suit”. This means that the licensee can exercise both its statutory remedy
to disconnect as well as a civil remedy to institute a suit for recovery
against the consumer since the licensee will not necessarily obtain the
amount due from the consumer by disconnecting the supply. In its decision
in Bihar SEB v. Iceberg Industries Ltd.,57 this Court has held that
the power to disconnect supply under Section 56 is a special power
given to the supplier in addition
to the normal mode of recovery by
instituting a suit. The power to disconnect the supply of electricity as a
consequence of the non-payment of dues and as a method to recover
dues is supplemental to the right of the licensee to institute a suit or other
proceedings for the recovery of dues on account of electrical charges.
122. Section 56(1) of the 2003 Act is pari materia to Section 24
of the 1910 Act. Section 24 of the 1910 Act empowered the Electricity
Board to issue a demand and to discontinue supply to consumers who
neglected to pay charges, without prejudice to the right to recover such
charges or other sums by way of a suit. The import of Section 24 was
considered by this Court in Isha Marbles (supra), where it was observed
that the action of cutting off electricity supply after service of the notice
as prescribed under Section 24 was in addition to the general remedy of
filing a suit for recovery.
123. In M/s Swastic Industries v. Maharashtra State
Electricity Board,58 this Court held that the right to discontinue supply
57 (2020) 20 SCC 745
58 (1997) 9 SCC 465
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of energy under Section 24 was not taken away by Section 60A of the
1948 Act, which provided an option to the Electricity Board to file a suit
within the period of limitation stipulated there. This Court observed that:
“5. It would, thus, be clear that the right to recover the
charges is one part of it and right to discontinue supply of
electrical energy to the consumer who neglects to pay
charges is another part of it. The right to file a suit is a
matter of option given to the licensee, the Electricity Board.
Therefore, the mere fact that there is a right given to the
Board to file the suit and the limitation has been prescribed
to file the suit, it does not take away the right conferred on
the Board under Section 24 to make demand for payment of
the charges and on neglecting to pay the same they have the
power to discontinue the supply or cut off the supply, as the case
may be, when the consumer neglects to pay the charges. The
intendment appears to be that the obligations are
mutual….” 
(emphasis supplied)
Hence, the power to initiate recovery proceedings by filing a suit
against the defaulting consumer is independent of the power to disconnect
electrical supply as a means of recovery.
124. The second issue pertains to the implication of the period of
two years provided in Section 56(2) on the civil remedies of Utilities to
recover electricity dues. Section 56(2), which begins with a non obstante
clause, provides a limitation of two years for recovery
of dues by the
licensee through the means of disconnecting electrical supply. It puts a
restriction on the right of the licensee to recover any sum due from a
consumer under Section 56 after a period of two years from the date
when such sum became first due. If this provision is invoked against a
consumer after two years, the action will be permissible when the sum,
which was first due, has been shown continuously as recoverable as
arrears of charges for electricity supplied. Under Section 56, the liability
to pay arises on the consumption of electricity and the obligation to pay
arises when a bill is issued by the licensee for the first time. Accordingly,
the period of limitation of two years starts only after issuance of the bill.
125. Before we deal with the implication of Section 56(2) on the
civil remedies available to a licensee, it is important to clarify that when
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the liability incurred by a consumer is prior to the period when the 2003
Act came into force, then the bar of limitation under Section 56(2) is not
applicable. In Kusumam Hotels Pvt Ltd v. Kerala State Electricity
Board,59 this Court has held that Section 56(2) applies after the 2003
Act came into force and the bar of limitation under Section 56(2) would
not apply to a liability incurred by the consumer prior to the enforcement
of the Act. In terms of Section 6 of the General Clauses Act 1897, the
liability incurred under the previous enactment would continue and the
claim of the licensee to recover electricity would be governed by the
regulatory framework which was in existence prior to the enforcement
of the 2003 Act.
126. In its report dated 19 December 2002, the Standing
Committee of Energy opined that the restriction for recovery of arrears
under Section 56 was considered necessary to protect the consumer
from arbitrary billings.60 In other words, the enactment of Section 56(2)
was to address the mischief of arbitrary billings. Hence, Section 56(2)
was incorporated to ensure that a licensee does not abuse its special
power of disconnection of electrical supply. Section 56(2) ensures that a
licensee does not have the liberty to arbitrarily impose a bill after a long
period and then recover such a huge amount through the drastic step of
disconnection of electrical supply.
127. In Rahamatullah Khan (supra), a two
judge Bench of this
Court dealt with the applicability of the period of limitation provided by
Section 56(2) on an additional or supplementary demand raised by the
licensee. A consumer was billed under a particular tariff but after an
audit, it was discovered that a different tariff code should have been
applied. An additional bill was subsequently raised in 2014 for the period
from July 2009 to September 2011. Section 56(2) was interpreted not to
preclude the licensee from raising a supplementary demand after the
expiry of the period of limitation under Section 56(2) in the case of a
mistake or a bona fide error. However, it did not empower the licensee
to take recourse to the coercive measure of disconnection of electricity
supply for recovery of the additional demand. This Court held that the
bar of limitation of two years does not preclude the licensee from resorting
to other modes of recovery of electricity arrears. The court observed:
59 (2008) 12 SCC 213
60 Standing Committee of Energy- Thirteenth Lok Sabha, The Electricity Bill 2001-
Thirsty First Report, Ministry of Power (2002)
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“7.4 Sub-section (1) of Section 56 confers a statutory right to the
licensee company to disconnect the supply of electricity, if the
consumer neglects to pay the electricity dues. This statutory right
is subject to the period of limitation of two years provided by sub-
section (2) of Section 56 of the Act
7.5The period of limitation of two years would commence
from the date on which the electricity charges became “first
due” under sub-section (2) of Section 56. This provision
restricts the right of the licensee company to disconnect electricity
supply due to non-payment of dues by the consumer, unless such
sum has been shown continuously to be recoverable as arrears of
electricity supplied, in the bills raised for the past period. If the
licensee company were to be allowed to disconnect electricity
supply after the expiry of the limitation period of two years after
the sum became “first due”, it would defeat the object of Section
56(2).
8. Section 56(2) however, does not preclude the licensee company
from raising a supplementary demand after the expiry of the
limitation period of two years. It only restricts the right of the
licensee to disconnect electricity supply due to non-payment
of dues after the period of limitation of two years has
expired, nor does it restrict other modes of recovery which
may be initiated by the licensee company for recovery of a
supplementary demand.
9. Applying the aforesaid ratio to the facts of the present case,
the licensee
company raised an additional demand on 18-3-2014
for the period July 2009 to September 2011. The licensee company
discovered the mistake of billing under the wrong Tariff Code on
18-3-2014. The limitation period of two years under Section 56(2)
had by then already expired.
9.1. Section 56(2) did not preclude the licensee company
from raising an additional or supplementary demand after
the expiry of the limitation period under Section 56(2) in
the case of a mistake or bona fide error. It did not, however,
empower the licensee company to take recourse to the
coercive measure of disconnection of electricity supply, for
recovery of the additional demand.”
(emphasis supplied)
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128. The exposition of law by this Court in Rahamatullah Khan
(supra) was considered by a coordinate bench in Prem Cortex (supra).
A consumer was served with a short assessment notice and the Court
had to consider whether short billing and the subsequent raising of an
additional demand would tantamount to a deficiency of service. This
Court observed that the bar contemplated in Section 56 operates on two
distinct rights of the licensee, namely, the right to recover and the right to
disconnect. This Court observed that under the law of limitation, the
remedy and not the right is extinguished. The bar with reference to the
remedy of disconnection was held to be an exception to the law of
limitation. This Court further considered the impact of Section 56(1) on
Section 56(2) and observed:
“15. Therefore, the bar actually operates on two distinct
rights of the licensee, namely, (i) the right to recover; and (ii) the
right to disconnect. The bar with reference to the
enforcement of the right to disconnect, is actually an exception to
the law of limitation. Under the law of limitation, what is
extinguished is the remedy and not the right. To be precise, what
is extinguished by the law of limitation, is the remedy through a
court of law and not a remedy available, if any, de hors through a
court of law. However, section 56(2) bars not merely the normal
remedy of recovery but also bars the remedy of disconnection.
This is why
we think that the second part of Section 56(2) is an
exception to the law of limitation.
….
23. Coming to the second aspect, namely, the impact of Sub-
section (1) on Sub-section (2) of Section 56, it is seen that the
bottom line of Subsection (1) is the negligence of any person to
pay any charge for electricity. Sub-section (1) starts with the words
“where any person neglects to pay any charge for electricity or
any sum other than a charge for electricity due from him”.
24. Sub-section (2) uses the words “no sum due from any
consumer under this Section”. Therefore, the bar under Sub-
section (2) is relatable to the sum due under Section 56. This
naturally takes us to Sub-section (1) which deals specifically
with the negligence on the part of a person to pay any charge
for electricity or any 
sum other 
than 
a charge
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for electricity. What is covered by section 56, under sub-
section (1), is the negligence on the part of a person to pay
for electricity and not anything else nor any negligence on
the part of the licensee.”
(emphasis supplied)
129. The period of limitation under Section 56(2) is relatable to
the sum due under Section 56. The sum due under Section 56 relates to
the sum due on account of the negligence of a person to pay for electricity.
Section 56(2) provides that such sum due would not be recoverable
after the period of two years from when such sum became first due.
The means of recovery provided under Section 56 relate to the remedy
of disconnection of electric supply. The right to recover still subsists.
130. We may also briefly deal with the objection of the auction
purchasers that the conditions of supply cannot be used to resurrect
time barred debts. Counsel placed reliance on VT Kallianikutty (supra),
where it was held that a time barred debt cannot be recovered by taking
recourse to the provisions of the Kerala Revenue Recovery Act.This
decision is not helpful to the auction purchasers in the present batch of
cases. In that case, a three-judge Bench of this Court while dealing with
agricultural loans extended by the Kerala Finance Corporation, held that
since the Kerala Revenue Recovery Act does not create a new right, a
person could not claim the recovery of amounts which are not legally
recoverable. In reaching its decision, this Court, however,
reasoned that
the statute of limitation bars the remedy by way of a suit beyond a
certain time period, without touching the right to recover the loan. The
right remains untouched and it can be exercised in any other suitable
manner provided.
131. We therefore, reject the submission of the auction purchasers
that the recovery of outstanding electricity arrears either by instituting a
civil suit against the erstwhile consumer or from a subsequent transferee
in exercise of statutory power under the relevant conditions of supply is
barred on the ground of limitation under Section 56(2) of the 2003 Act.
Accordingly, while the bar of limitation under Section 56(2) restricts the
remedy of disconnection under Section 56, the licensee is entitled to
recover electricity arrears through civil remedies or in exercise of its
statutory power under the conditions of supply.
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VII. Implication of the sale of premises on “as is where is”
basis, with or without reference to electricity arrears of the
premises
132. The Electric Utilities have urged that (i) the auction purchasers
were put to notice of the requirement of the clearance of dues; (ii) the
public auction-sales of premises were held on an “as is where is” basis;
(iii) this would include a condition of acknowledging all liabilities in respect
of the premises, with or without a specific reference of payment of
electricity dues; and (iv) in a sale arising out of commercial transactions,
the auction purchaser is required to undertake due diligence of outstanding
dues which are premises specific. On the other hand, the auction
purchasers submitted that (i) a condition such as “as is where is” is a
feature of physical property and does not extend to claims which are not
charges or other encumbrances running with land; (ii) the argument finds
support in the decisions in Punjab Urban Planning and Development
Authority v. Raghu Nath Gupta61 and Delhi Development Authority
v. Kenneth Builders and Developers Pvt Limited62; (iii) electricity
dues cannot be ascertained merely by looking at a property; and (iv)
there was no obligation on the applicants to ascertain the electricity dues
payable, more so in view of the judgement in the Isha Marbles (supra).
133. In the present batch of cases, the premises were sold in
auction sales generally held
on an “as is where is” basis. A sale on “as is
where is basis” postulates that the purchaser would be acquiring the
asset with all its existing rights, obligations and liabilities. When a property
is sold on an “as is where is” basis, encumbrances on the property stand
transferred to the purchaser upon the sale.
134. In U.T. Chandigarh Administration v. Amarjeet Singh63,
a two-judge Bench of this Court explained the characteristics of a public
auction in the context of the maintainability of a consumer complaint.
This Court held that where existing sites are put up for sale or lease by
public auction and the sale is confirmed in favour of the highest bidder,
the resultant contract relates to sale or lease of immovable property, and
not a provision of service or sale of goods. This Court delved into the
nature of public auctions and opined on the implications of an auction
conducted on an “as is where is basis”, where an auction purchaser is
61 (2012) 8 SCC 197
62 (2016) 13 SCC 561
63 (2009) 4 SCC 660
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expected to exercise due diligence with regard to the condition of a site.
The Court observed:
“19. …. In a public auction of sites, the position is completely
different. A person interested can inspect the sites offered and
choose the site which he wants to acquire and participate in the
auction only in regard to such site. Before bidding in the auction,
he knows or is in a position to ascertain, the condition and
situation of the site. He knows about the existence or lack
of amenities. The auction is on `as is where is basis’. With
such knowledge, he participates in the auction and offers a
particular bid. There is no compulsion that he should offer
a particular price. When the sites auctioned are existing sites,
without any assurance/representation relating to amenities, there
is no question of deficiency of service or denial of service. Where
the bidder has a choice and option in regard to the site and price
and when there is no assurance of any facility or amenity, the
question of the owner of the site becoming a service provider,
does not arise…
20.Where there is a public auction without assuring any
specific or particular amenities, and the prospective
purchaser/lessee participates in the auction after having
an opportunity of examining the site, the bid in the auction
is made keeping in view the existing situation, position and
condition of the site. If all amenities are available, he would
offer a higher amount. If there are no amenities, or if
the site
suffers from any disadvantages, he would offer a lesser amount,
or may not participate in the auction. Once with open eyes, a
person participates in an auction, he cannot thereafter be heard to
say that he would not pay the balance of the price/premium or the
stipulated interest on the delayed payment, or the ground rent, on
the ground that the site suffers from certain disadvantages or on
the ground that amenities are not provided….”
(emphasis supplied)
135. In Raghu Nath Gupta (supra),64 this Court held that a
successful auction purchaser of commercial plots sold with a superimposed
condition of “as is where is” basis is estopped from later contending that
64 (2012) 8 SCC 197
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he is not bound by the terms and conditions of the auction notice or that
the seller had not provided basic amenities. The Court relied on the
terms and conditions, specifically Clause 25, stipulated in the auction
notice published by Punjab Urban Planning and Development Authority
in reaching its conclusion and held that the auction notice would have
considerable bearing in resolving the dispute. Clause 25 of the auction
notice provided that the site was offered on “as is where is” basis and
the Authority would not be responsible for levelling the site or removing
structures, if any, thereon. The phrase “as is where is” was explained by
this Court in the following terms:
“14. We notice that the respondents had accepted the
commercial plots with the open eyes, subject to the above
mentioned conditions. Evidently, the commercial plots were
allotted on “as is where is” basis. The allottees would have
ascertained the facilities available at the time of auction
and after having accepted the commercial plots on “as is
where is” basis, they cannot be heard to contend that PUDA
had not provided the basic amenities like parking, lights,
roads, water, sewerage etc. If the allottees were not interested
in taking the commercial plots on “as is where is” basis, they
should not have accepted the allotment and after having accepted
the allotment on “as is where is” basis, they are estopped from
contending that the basic amenities
like parking, lights, roads, water,
sewerage etc. were not provided by PUDA when the plots were
allotted….”
(emphasis supplied)
136. In Kenneth Builders and Developers (supra), in the
circumstances arising in that particular case, this Court refused to accept
the seller’s reliance on the “as is where is” condition and held that refusal
of the Delhi Pollution Control Committee,65 to grant permission to the
auction purchaser, frustrated the Development Agreement which was
entered into between the seller, Delhi Development Authority,66 and the
builder. DDA had held an auction on an “as is where is” basis for involving
the private sector for the development of a project land. The bid was
accepted and a Development Agreement was entered between DDA
and the builder. However, when the builder attempted to carry out
65 “DPCC”
66 “DDA”
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construction activity, it was prohibited by DPCC leading to an impasse
in the development activity. The terms and conditions of auction
specifically mentioned that there was a presumption that the intending
purchaser had inspected the site and had familiarised himself with
prevalent conditions in all respects including the status of infrastructural
facilities available before giving its bid. Under Clause 6 of the
Development Agreement, it was the responsibility of the developer to
get various approvals and clearances from governmental departments.
Clause 11 of the Development Agreement further stipulated that the
builder was deemed to have inspected the site and its surroundings and
checked the information available. This Court held that the auction sale
on an “as is where is” basis and the specific clauses in the Development
Agreement “related only to physical issues pertaining to the project land
and ancillary or peripheral legal issues pertaining to the actual construction
activity”. It was observed:
“34. When the DDA informed Kenneth Builders that the
project land was available on an “as is where is basis” and
that it was the responsibility of the developer to obtain all
clearances, the conditions related only to physical issues
pertaining to the project land and ancillary or peripheral
legal issues pertaining to the actual construction activity,
such as compliance with the building bye-laws,
environmental clearances etc. The terms and conditions of
“as is where is” or environmental clearances emphasized by
learned counsel for the DDA certainly did not extend to
commencement of construction activity prohibited by law except
after obtaining permission of the Ridge Management Board and
this Court. On the contrary, it was the obligation of the DDA to
ensure that the initial path for commencement of construction
was clear, the rest being the responsibility of the developer. The
failure of the DDA to provide a clear passage due to an intervening
circumstance beyond its contemplation went to the foundation of
implementation of the contract with Kenneth Builders and that is
what frustrated its implementation.
35. Reliance by the learned counsel for DDA on the “as is where
is” concept as well as Clause 6 and 11 of the Development
Agreement in this context is misplaced. As mentioned
above, this primarily pertains to physical issues at site….”
(emphasis supplied)
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137. Reliance placed by the auction purchasers on Raghu Nath
Gupta (supra) and Kenneth Builders and Developers (supra)to
contend that “as is where is” is a feature of physical property, limited to
encumbrances or charges running with land, is misconceived. In both
the cases relied upon by the auction purchasers, the judgments were
rendered on the peculiar facts at hand. In Raghu Nath Gupta (supra)
this Court was dealing with the availability of basic facilities like parking,
lights, roads, water and sewerage, but the application of the doctrine of
“as is where is” was not limited to only physical features of the property.
Further, in Kenneth Builders and Developers (supra) based on the
facts, this Court opined that a sale on “as is where is” could not be
interpreted to mean that the auction purchaser would be responsible to
take permission for the initial commencement of construction itself, which
was the obligation of the DDA. The observation of this Court that “this
primarily pertains to physical issues at site” was limited to specific clauses
in the Development Agreement.
138. Thus, the implication of the expression “as is where is” or
“as is what is basis” or “as is where is, whatever there is and without
recourse basis” is not limited to the physical condition of the property,
but extends to the condition of the title of the property and the extent and
state of whatever claims, rights and dues affect the
property, unless
stated otherwise in the contract. The implication of the expression is
that every intending bidder isput on notice that the seller does not undertake
any responsibility to procure permission in respect of the property offered
for sale or any liability for the payment of dues, like water/service charges,
electricity dues for power connection and taxes of the local authorities,
among others.
139. The view which we take finds support in the judgments of
this Court in Paramount Polymers (supra)and Srigdhaa Beverages
(supra). In Paramount Polymers (supra), the premises of the erstwhile
owner were sold under the State Financial Corporations Act 1951 on an
“as is where is” basis. This Court held that an auction purchaser cannot
be considered an ignorant party and a reasonable enquiry would have
put it on notice of the subsistence of such a liability. It was observed:
“9. …. Before submitting its bid to the Financial Corporation the
first respondent would certainly have inspected the premises and
could have come to know that power connection to the premises
had been snapped and this information should have put it on
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reasonable enquiry about the reasons for the power disconnection
leading to the information that the previous owner of the
undertaking or consumer was in default. Moreover, the appellant
had clearly written to the Financial Corporation even before the
sale was advertised by it, informing it that a sum of Rs.64,23,695/
- was due towards electricity charges to the appellant and when
selling the undertaking, that amount had to be provided for or kept
in mind. Therefore, any reasonable enquiry by the first respondent
as a prudent buyer would have put it on notice of the subsistence
of such a liability. The sale was also on ‘as is where is’ basis…..”
140. In Srigdhaa Beverages (supra), this Court was considering
an auction sale under the Securitisation and Reconstruction of Financial
Assets and Enforcement of Security Interest Act 2002.67 The Court
analysed Clauses 24 and 26 of the auction notice, which stipulated an
“as is where is” sale with respect to all statutory dues and absolved the
authorised officer of all liabilities for any charge, encumbrances and
dues, including electricity dues. It concluded that the auction purchaser
was “clearly put to notice” since there was a specific mention of the
quantification of dues of various accounts including electricity dues. On
the liability of the past owners to bear electricity dues when the sale is
on “as is where is” and existence of electricity dues is specifically
mentioned, this Court categorically held that
the auction purchasers were
bound to inspect the premises and provide for the dues in all respects.
This Court observed:
“16.2. 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 doubt that
the liability to pay electricity dues exists on the respondent
(purchaser).”
141. To conclude, all prospective auction purchasers are put on
notice of the liability to pay the pending dues when an appropriate “as is
where is” clause is incorporated in the auction sale agreement. It is for
the intending auction purchaser to satisfy themselves in all respects about
circumstances such as title, encumbrances and pending statutory dues
in respect of the property they propose to purchase. In a public auction
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sale, auction purchasers have the opportunity to inspect the premises
and ascertain the facilities available, including whether electricity is
supplied to the premises. Information about the disconnection of power
is easily discoverable with due diligence, which puts a prudent auction
purchaser on a reasonable enquiry about the reasons for the disconnection.
When electricity supply to a premises has been disconnected, it would
be implausible for the purchaser to assert that they were oblivious of the
existence of outstanding electricity dues.
142. In terms of the legal doctrine of caveat emptor, it becomes
the duty of the buyer to exercise due diligence. A seller is not under an
obligation to disclose patent defects of which a buyer has actual or
constructive notice in terms of Section 3 of the Transfer of Property act,
1882. However, in terms of Section 55(1)(a), in the absence of a contract
to the contrary, the seller is under an obligation to disclose material defects
in the property or in the seller’s title thereto of which he is aware and
which a buyer could not with ordinary care discover for himself.
143. While examining the effect of an “as is where is” clause, the
facts and circumstances of each case individually, along with the
terminology of the clauses governing the auction sales must be taken
into consideration, to arrive at an equitable decision.
G. Application: Facts of Individual Cases
144. Before we
apply the above analysis to the facts of the
individual cases, it needs to be clarified that each case involves, in one
way or another, application of the conditions of supply or Electricity
Supply Code. At the outset, we note that the relevant date to determine
the applicability of the conditions of supply or Electricity Supply Code is
the date on which the auction purchaser applied for a fresh connection
or reconnection for supply of electricity to the premises. The cause of
action arises when a fresh connection or reconnection is sought by the
auction purchaser. This has also been reiterated in the decision of this
Court in Paramount Polymers (supra). This Court observed:
“11. ….. We are also not in a position to agree with the High
Court that the relevant date is the date of sale of the undertaking
by the Financial Corporation to the first respondent. The insertion
of clause 21-A was circulated by the communication dated 27-
11-2001 and it was subsequently followed by the formal notification
in terms of Section 49 of the Supply Act read with Section 79(j) of
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that Act. The first respondent having applied for a fresh
connection only on 1-1-2002, the application would be
governed by the Terms and Conditions including the term
inserted on 27-11-2001, as subsequently formally notified.
In the writ petition filed on 27-2-2002 in that behalf, the Court
could not have come to the conclusion that the application made
by the first respondent was not governed by the amended Terms
and Conditions of Supply including clause 21-A thereof…..On
our interpretation of clause 21-A of the Terms and Conditions of
Supply as inserted with particular reference to sub-clauses (b)
and (c) thereof, we are of the view that the said sub-clauses
clearly applied to the first respondent when it made an application
on 1-1-2002 seeking a fresh connection for the premises.”
(emphasis supplied)
Considering the facts of the nineteen cases, we decide the appeals
in the following manner:
I.Kerala
145. The KSEB in exercise of powers conferred under Section
49 and Section 79(j) of the 1948 Act framed regulations relating to
Conditions of Supply of Electrical Energy. The regulations were published
in the Gazette on 15 December 1989 and came into force with effect
from 1 January 1990. Clause 15 deals with the agreement for a service
connection. The relevant clause, with which we are concerned, is
extracted below:
“15. Agreement for Service Connection
15(c): When there is transfer of ownership or right of occupancy
of the premises the registered
consumer shall intimate the transfer
of right of occupancy of the premises within 7 days to the Assistant
Engineer/Assistant Executive Engineer concerned. On such
intimation having been received the service shall be disconnected.
If the transferee desires to enjoy service connection, he shall pay
off the dues to the Board and apply for transfer of ownership of
service connection within 15 days and execute fresh agreement
and furnish additional security. New consumer number shall be
allotted in such cases cancelling the previous number.
K. C. NINAN v. KERALA STATE ELECTRICITY BOARD &
ORS. [DR DHANANJAYA Y CHANDRACHUD, CJI]
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15(d): All dues to the Board from a consumer shall be the first
charge on the assets of the consumer. All dues including penalty
shall be realized as public revenue due on land.
15(e): Reconnection or new connection shall not be given into
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 re-connection or new 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)”
146. In terms of Clause 15(c), when there is a transfer of ownership
or right of occupancy of the premises, the registered consumer shall
intimate the transfer of the right of occupancy of the premises within
seven days to the officer concerned. On such intimation being received,
the service shall be disconnected. If the transferee desires a service
connection, they shall pay off the dues and apply for transfer of the
ownership of the service
connection. In terms of Clause 15(d), all dues
to the KSEB from a consumer shall be the first charge on the assets of
the consumer. In terms of Clause 15(e), a new connection or reconnection
shall not be given to any premises where there are arrears on any account
unless they are cleared in advance.
147. The validity of Clause 15(e) was upheld by a Full Bench
decision of the Kerala High Court in Suraj v. KSEB.68 The High Court
upheld the validity of the said regulation on the ground that it is unjust to
compel the Board to supply electricity to the very same premises without
the arrears of the previous owner or occupier being cleared. The High
Court observed:
“8. Regulations make no distinction between an auction purchaser
and others in the matter of supply of electricity. Regulations 15(d)
and (e) have been incorporated with a purpose, or else by
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successive transfer of the premises the Board’s right to recover
the amount from the previous consumers as well as from the
assets could be effectively defeated at the same time the Board
is called upon to provide electricity to the same premises.
Regulation 15(e) has a reasonable nexus with the object
sought to be achieved, that is to save public property so as
to subserve the general interest of the community. Once
electricity is disconnected and the equipment dismantled,
it is unjust to compel the Board to give electricity
connection to the very same premises at the instance of a
third party which will not be in public interest especially
when electricity is considered as a public property. Further
petitioner has also not challenged the validity of Regulations 15(d)
and 15(e) in this writ petition.”
(emphasis supplied)
148. Two cases — K.C. Ninan v. KSEB69 andKJ Dennis v.
KSEB,70 arise from the state of Kerala. In both these cases, the Kerala
High Court upheld the validity of Clause 15(e) and directed that to avail
a fresh electricity connection for premises where arrears are due, the
auction purchasers would have to pay outstanding dues of the previous
consumer in compliance with the said condition.
Item 101.9: KJ Dennis v. Kerala State Electricity Board;
Civil Appeal 2108 of 2004
149. The KSEB disconnected the electricity connection of Pearlite
Wire Products Ltd in 1992 on account of unpaid electricity charges.
Meanwhile, the Kerala High Court
ordered the winding up of the
company under the Sick Industrial Companies (Special Provision) Act
1985,71 as the original owner failed to pay its dues to Syndicate Bank
and Kerala Financial Corporation. On 20 April 1997, KSEB addressed a
letter to the Official Liquidator, demanding payment of Rs 66 lakhs, being
arrears of electricity charges and penal interest. On 27 January 1999,
the offer of the appellant to purchase the properties of Pearlite Wire
Products Ltd was accepted and was confirmed by the Kerala High
Court on 4 March 1999. The terms of sale, as settled by the High Court,
provided that:
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70 CA 2108/2004
71 “SICA”
K. C. NINAN v. KERALA STATE ELECTRICITY BOARD &
ORS. [DR DHANANJAYA Y CHANDRACHUD, CJI]
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“7. General terms and conditions:-
***
(c) The assets are sold on “As Where is and Whatever there Is”
condition.
(d) The assets are sold on the assumption that the tendered have
inspected the assets, know what they are tendering for, whether
they have inspected or not and the principle of ‘Caveat Emptor’
will apply.”
150. The appellant sought permission of the KSEB for wiring for
an electricity connection in the property by a letter dated 4 June 1999.
Wiring permission was rejected by KSEB due to the outstanding dues of
the erstwhile owner, and it was stated that a new connection would be
provided if the appellant was ready to remit the amount due from the
previous consumer.
151. In the interregnum, KSEB filed a claim petition before the
Company Court in a company petition72 claiming a sum of Rs 86,54,711
from Pearlite Wire Products Ltd, which was in liquidation. The claim
petition was admitted for Rs 63 lakhs. The appellant filed a company
application73 seeking a direction to the KSEB to not insist on payment of
arrears of electricity charges by the auction purchaser, which were due
from the company in liquidation. On 18 September 2000, the Single Judge
rejected the application filed by the appellant, holding that KSEB can
insist on the arrears being cleared before the connection is given.
Aggrieved by the order, the appellant challenged the validity of Clause
15(e) before the High Court on the ground that it is
violative of Article
14 of the Constitution. On 18 July 2001, the Division Bench rejected the
challenge. Finally, on 14 September 2001, the impugned order was passed
in which the Review Petition against the order of the Division Bench
was dismissed.
152. By its judgement dated 18 July 2001, the Kerala High Court
upheld the validity of Clause 15(e) and held that the KSEB is not bound
to give a reconnection or a new connection to the premises where there
are arrears on any account due to the Board, unless the arrears including
penalty, are cleared in advance. It observed that Section 79(j) read with
72 Company Petition 15 of 1994
73 Company Application 349 of 1999 in Company Petition 15 of 1994
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Section 49 of the 1948 Act gave considerable latitude to the Board to
make regulations governing the supply of electricity, and the Board could
effect supply of electricity upon such terms and conditions as it thinks
fit, that is, in accordance with Clause 15(e). The Court further noted
that even when all formalities have been satisfied by a prospective
consumer in accordance with Clause VI of the Schedule to the 1910
Act, the Board retains the power to lay down appropriate regulations to
safeguard electricity, which is public property and take actions in the
best interest of the Board. The Court placed reliance on the judgement
of the Kerala High Court in A Ramachandran v. KSEB74 in reaching
its decision.
153. In the impugned judgement dated 14 September 2001 in the
Review Petition, the Court further clarified that Clause 15(e) can also
be invoked in winding up proceedings as the manner in which the new
person became owner, allottee or occupier of the property is immaterial.
Finally, the High Court clarified that the mere fact that the Electricity
Board was trying to recover the due amount as a secured creditor before
the winding up proceedings as against the previous owner, would be of
no consequence on the applicability of Clause 15(e).
154. Notice was issued by this Court on 25 January 2002. By an
order dated 28 February 2007, this Court directed the parties to negotiate
a settlement and arrive at a formula to recover the amount agreeable to
both
parties. This Court observed:
“Balancing the equities as they arise in the present case would be
a delicate task, and whichever way we decide this case the losing
party may feel that justice has been denied to it. At the same time,
we cannot lose sight of the fact that the appellants have made
huge investments as claimed by them, and only the interest
component on such investment may create a huge liability as
against the appellant. On the other hand, if the industry starts
functioning, perhaps the Electricity Board will also stand to gain.
We have no doubt that instead of litigating, if the parties could
have settled the dispute, both would have benefited to a great
extent.”
However, no settlement could be reached.
74 2000 SCC OnLine Ker 75
K. C. NINAN v. KERALA STATE ELECTRICITY BOARD &
ORS. [DR DHANANJAYA Y CHANDRACHUD, CJI]
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155. We are of the view that the Kerala High Court was correct
in upholding the validity of Clause 15(e). Clause 15 of the Conditions of
Supply of the Electrical Energy, which is statutory in character,
unequivocally provides that the Board is not obligated to give reconnection
or a new connection in the premises where there are any arrears of
electricity charges from a previous consumer, unless the arrears including
penalty are cleared by the new owner/ occupier/ allottee. Furthermore,
in the present case the terms of auction sale provided that the assets
were sold on “as is where is and whatever there is’’ basis. In the light of
the clear facts, the respondent would be well within its right to demand
the electricity arrears due, from the appellant-purchaser. Since KSEB’s
claim petition was admitted for Rs 63,94,298 the amount remitted, if any,
by the appellant to whom connection has been effected would be adjusted
in accordance with Clause 15(e).
156. We hold that the decision of the High Court does not call for
interference. The appeal is therefore dismissed.
Item 101: K.C. Ninan v. Kerala State Electricity Board;
Civil Appeal No. 2109-2110 of 2004
157. The appellant purchased the property of United Industries
Cochin Ltd in a court auction on 31 October 1989. The electricity
connection of the premises was earlier disconnected in 1980 and the
electric supply line was dismantled in 1985 on account of non-payment
of
electricity charges. On 1 December 1989, the appellant allegedly
applied to KSEB for an electric connection to the purchased premises.
Subsequently, on 1 January 1990, Clause 15 of the Conditions of Supply
of electrical energy was effectuated. On 12 June 1990, the KSEB sent
a communication to the appellant, refusing to grant an electric connection
unless the appellant paid the arrears of electricity of the premises. As a
consequence, the appellant filed a writ petition seeking a permanent
electrical connection and challenging Clause 15(e) of the Conditions of
Supply.
158. The High Court in the judgement dated 13 February 2003
relied on KJ Dennis (supra)and A Ramachandran (supra), and rejected
the prayer of the auction purchaser to get an electricity connection without
paying the dues of the previous owner to the KSEB. The appellant filed
a review petition against the judgement dated 13 February 2003. It was
the appellant’s contention that the decisions in Ramachandran (supra)and
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KJ Dennis (supra) are inapplicable to the facts of the case. The
appellant submitted that the “judgement under review was delivered
without taking note of the fact that condition 15(e) was incorporated in
the Conditions of Supply of Electrical Energy only with effect from
1.1.1990 while the petitioner purchased the property on 31.10.1989 in a
Court auction and the application for electric connection was made on
1.12.1989.” The review petition filed by the appellant was dismissed on
the ground that the High Court’s decision in Ramachandran (supra)
took into consideration the ratio in Isha Marbles (supra)and thereafter
upheld the action taken by the respondent-Board.
159. This Court issued notice on 7 January 2004, and granted
leave on 2 April 2004. Recovery proceedings were stayed on 5 May
2006.
160. The appellant has submitted in the course of the written
submissions that the impugned regulation would apply prospectively as
subordinate legislation made by a delegate cannot have retrospective
effect unless rule making power in the concerned statute expressly or
by necessary implication confers power in this behalf.75 It was further
stated that the appellant had applied for electricity connection on 1
December 1989, before the Conditions of Supply came into force. It has
been urged that in the absence of any existing statutory regulations, the
appellant cannot be called upon to clear the past arrears incurred by the
erstwhile consumer as a condition