Supreme Court clarifies liability for electricity dues of previous owners on auction purchasers: K C Ninan vs. Kerala State Electricity Board (2023) INSC 478 (19 May 2023)

Supreme Court Clarifies Electricity Dues Liability for Auction Purchasers

Date of the Judgment: 19 May 2023
Citation: (2023) INSC 478
Judges: Dr Dhananjaya Y Chandrachud, CJI, Hima Kohli, J, Pamidighantam Sri Narasimha, J.
Can auction purchasers be held liable for the unpaid electricity dues of previous owners? The Supreme Court of India addressed this crucial question in a batch of appeals, clarifying the extent of liability for new owners acquiring properties through auction sales. The judgment interprets the interplay between the Electricity Act, 2003, and various state regulations regarding the recovery of electricity dues. This landmark decision provides much-needed clarity on the rights and obligations of both auction purchasers and electricity distribution companies.

Table of Contents

Case Background

This case involves nineteen appeals with similar facts. Electricity supply was disconnected due to unpaid dues by previous owners. These owners had often mortgaged their properties or taken loans against them. In some instances, the previous owners faced liquidation. The properties were then sold at auction, typically on an “as is where is” basis. The new owners sought new electricity connections, but the Electric Utilities refused to provide them unless the new owners cleared the outstanding dues of the previous owners. This refusal was based on powers given under subordinate legislations, notifications, electricity supply codes, or state regulations. The denial of electricity supply led to the filing of petitions under Article 226 of the Constitution before various High Courts, which resulted in the judgments now under appeal.

Timeline

Date	Event
24 August 2006	Reference to a three-judge bench in Maharashtra State Electricity Board v. Super & Stainless Hi Alloy Ltd regarding recovery of electricity arrears.
1 November 2007	Similar disputes were tagged along with the above reference.
15 December 1989	Kerala State Electricity Board (KSEB) notified the Conditions of Supply of Electrical Energy.
1 January 1990	Kerala State Electricity Board (KSEB) Conditions of Supply of Electrical Energy came into force.
1 January 1976	Maharashtra State Electricity Board (MSEB) Conditions of Supply came into effect.
10 August 2001	Gujarat Electricity Board inserted Condition 2(j) in the Conditions and Miscellaneous Charges for Supply of Electrical Energy.
30 August 2004	Assam Electricity Regulatory Commission (AERC) framed the Assam Electricity Regulatory Commission (Electricity Supply Code and Related Matters) Regulations.
20 January 2005	Maharashtra Electricity Regulatory Commission (Electricity Supply Code and other Conditions of Supply) Regulations 2005 came into effect.
31 March 2005	Gujarat Electricity Regulatory Board notified the Gujarat Electricity Regulatory Commission (Electricity Supply Code and Related Matters) Regulations, 2005.
20 August 2010	Amendment of the Gujarat Electricity Supply Code.
2012	West Bengal Electricity Regulatory Commission (Electricity Supply Code) Regulations, 2012 have been notified.

Legal Framework

The judgment discusses several key legal provisions:

✓ Section 2(c) of the Electricity Act 1910: Defined “consumer” as any person supplied with energy by a licensee, including those whose premises were connected for receiving energy.
✓ Section 21(2) of the Electricity Act 1910: Empowered a licensee to make conditions to regulate relations with consumers.
✓ Section 22 of the Electricity Act 1910: Obligated a licensee to supply electrical energy to every person within the area of supply on the same terms.
✓ Section 24 of the Electricity Act 1910: Empowered the licensee to disconnect electricity supply for non-payment.
✓ Section 5 of the Electricity (Supply) Act 1948: Mandated state governments to constitute State Electricity Boards.
✓ Section 26 of the Electricity (Supply) Act 1948: Provided that the Board shall have all the powers and obligations of a licensee under the 1910 Act.
✓ Section 49 of the Electricity (Supply) Act 1948: Empowered the Boards to supply electricity to any person on terms and conditions laid down by the Board.
✓ Section 70(2) of the Electricity (Supply) Act 1948: Stated that the provisions of the 1948 Act were in addition to, and not in derogation of the 1910 Act.
✓ Section 2(15) of the Electricity Act 2003: Defined ‘consumer’ similarly to Section 2(c) of the 1910 Act.
✓ Section 43 of the Electricity Act 2003: Casts a Universal Service Obligation on the distribution licensee to provide electricity supply to the premises of an owner or occupier.
✓ Section 50 of the Electricity Act 2003: Empowered the State Commission to specify an Electricity Supply Code, including provisions for recovery of electricity charges and disconnection for non-payment.
✓ Section 56 of the Electricity Act 2003: Allowed the licensee to disconnect electricity supply for non-payment.
✓ Section 181(2)(x) of the Electricity Act 2003: Provided that the State Commission may make regulations for the Electricity Supply Code under Section 50.

Arguments

Electric Utilities:

✓ The duty to supply electricity under Section 43 of the 2003 Act is not absolute and is subject to compliance with other provisions of the Act, including Section 50.
✓ The term “price” in Section 43 includes not only application fees but also charges related to the supply of electricity and outstanding dues.
✓ Supply of electricity is with reference to the “premises” and not to an individual, irrespective of any change in the owner or occupier.
✓ The Electricity Supply Code framed by the State Commission is a subordinate legislation with statutory character, enabling the recovery of dues from the subsequent owner.
✓ Section 56(2) of the 2003 Act does not bar recovery of electricity arrears through other avenues and the limitation of two years is with reference to bar on disconnection by the licensee.
✓ Auction purchasers are aware of the requirement to clear dues as the sale on “as is where is” includes all liabilities.

Auction Purchasers:

✓ The obligation to provide electricity under Section 43 of the 2003 Act is not conditional on discharging arrears of the previous consumer.
✓ The term “price” in Section 43 refers to the price at which electricity is supplied to the distribution licensee and does not include arrears of the previous owner.
✓ Reference to “premises” in Section 2(15) and Section 43 is only to fix a situs for the supply of electricity and the emphasis is on the “person” who is the owner or occupier.
✓ The liability to pay electricity dues is only on the person to whom the supply of electricity is made and is a contractual liability.
✓ A condition requiring an applicant to clear past dues of a previous consumer is unfair and cannot be enforced by delegated legislation.
✓ Electricity dues do not constitute a charge over the property and are simply an unsecured debt.
✓ The “as is where is” condition applies to physical properties and not to claims that are not charges or encumbrances.

Submissions Table

Main Submission	Electric Utilities Sub-Submissions	Auction Purchasers Sub-Submissions
Universal Service Obligation (USO)	USO is not absolute. Section 43 is subject to other provisions of the Act. Explanation to Section 43(1) requires compliance with necessary charges. Section 43(2) requires payment of price determined by State Commission.	USO is absolute. Section 43 is not conditional on previous consumer’s arrears. “Price” under Section 43 is only the price of electricity. “Charges” under Section 43 relate to application fees. Statutory duty under Section 43(1) has limited exceptions. No power to impose conditions beyond Sections 43(2), 45, 46, 47, and 48.
Supply of Electricity	Supply of electricity is with respect to premises. “Premises” is the continued identified place for supply. Infrastructure costs require liability to be fastened to the premises.	Supply of electricity is with respect to the consumer. “Premises” is only to fix a situs for supply. Sections 2(15), 43, and 44 refer to “premises” for identification.
Regulatory Regime	Section 49 of the 1948 Act empowers the Board to supply electricity upon terms and conditions. Terms and conditions of supply are statutory. Electricity Supply Code has statutory character. Condition of payment of outstanding dues is not compulsory extraction.	1910 Act and 1948 Act do not empower recovery from new owners. Conditions of supply are not statutory regulations. Condition of payment of outstanding dues is unfair.
Subordinate Legislation		Liability cannot be enforced by delegated legislation. Parent law must clearly prescribe the power to frame such legislation. 2003 Act does not empower the State Commission to add substantive conditions. Specific source of power must be provided in the parent legislation.
Charge over Premises	No mortgage or charge over the property in the form of a secured creditor. Licensee has the right to insist on clearance of dues before giving new connection.	Electricity dues do not constitute a charge over property. State Commission has no power to provide for fiscal exaction. Conditions of supply are contractual and do not constitute a charge. Electricity dues are an unsecured debt.
Civil and Statutory Remedies	Section 56(2) does not bar recovery through other avenues. Limitation of two years under Section 56(2) is with reference to disconnection. Right to deny connection until dues are cleared is a continuing right.	Electric Utilities cannot recover dues over and above what is provided in Section 56(2). Electric Utilities allowed dues to mount up instead of taking effective steps. Conditions of Supply cannot resurrect a time-barred debt.
Auction Sale	Auction purchasers were put to notice of the requirement to clear dues. “As is where is” includes all liabilities. Obligation to verify and obtain no dues certificate. Purchaser cannot deny knowledge of the requirement to clear dues.	“As is where is” is a feature of physical properties. No obligation to ascertain dues. Isha Marbles (supra) continues to hold the field.

Issues Framed by the Supreme Court

Whether the Universal Service Obligation under Section 43 of the 2003 Act is linked to premises to which the connection is sought.
Whether a connection of electricity supply sought by an auction-purchaser comprises a reconnection or a fresh connection.
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.
Whether the power to enable the recovery of arrears of the previous owner or occupier from an auction-purchaser can be provided through subordinate legislation by the State Commissions.
Whether the 1910 Act, 1948 Act, and the 2003 Act have express provisions enabling the creation of a charge or encumbrance over the premises.
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.
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?

Treatment of the Issue by the Court

Issue	Court’s Decision
Universal Service Obligation (USO)	The duty to supply electricity under Section 43 is not absolute and is subject to charges and compliances stipulated by distribution licensees.
Supply of Electricity	The duty to supply electricity is with respect to the consumer, not the premises, though the premises are identified for the situs of supply.
Reconnection vs. Fresh Connection	A connection sought by a subsequent owner is a fresh connection, not a reconnection.
Regulatory Power	Electric Utilities can enact conditions for recovery of dues of the previous owner from the new owner as a precondition for supply of electricity.
Charge over Premises	Electricity arrears do not automatically become a charge over the premises. Such a charge can be created by subordinate legislation.
Implication of Section 56(2)	Section 56(2) limits the power to disconnect after two years but does not bar other recovery methods.
Auction Sale Basis	“As is where is” basis includes all existing liabilities unless stated otherwise.

Authorities

The Court considered the following authorities:

Authority	Court	How Considered	Legal Point
Isha Marbles v. Bihar State Electricity Board, 1995 SCC (2) 648	Supreme Court of India	Distinguished	Electricity dues do not constitute a charge on the property.
Ahmedabad Electricity Co. Ltd. v. Gujarat Inns (P) Ltd, (2004) 3 SCC 587	Supreme Court of India	Followed on fresh connection	Connection sought by auction purchasers is a fresh connection.
Hyderabad Vanaspathi Ltd v. Andhra Pradesh State Electricity Board, (1998) 4 SCC 470	Supreme Court of India	Followed	Terms and conditions of supply are statutory.
Dakshin Haryana Bijli Vitran Nigam Ltd v. M/s Paramount Polymers Pvt Ltd, AIR 2007 SC 2	Supreme Court of India	Followed	Conditions of supply can include recovery of dues from transferees.
Paschimanchal Vidyut Vitran Nigam Limited v. DVS Steels and Alloys Private Limited, (2009) 1 SCC 210	Supreme Court of India	Followed	Licensee can insist on fulfillment of statutory rules.
Telangana State Southern Power Distribution Co. Ltd. v. Srigdhaa Beverages, (2020) 6 SCC 404	Supreme Court of India	Followed	Electricity dues are statutory and cannot be waived.
Section 24 of the Electricity Act, 1910	N/A	Interpreted	Licensee can disconnect supply for non-payment.
Section 49 of the Electricity (Supply) Act, 1948	N/A	Interpreted	Board can prescribe terms and conditions for supply.
Section 50 of the Electricity Act, 2003	N/A	Interpreted	State Commission can specify Electricity Supply Code.
Section 56 of the Electricity Act, 2003	N/A	Interpreted	Licensee can disconnect supply for non-payment but subject to limitation.
Section 100 of the Transfer of Property Act, 1882	N/A	Interpreted	Discusses charges on immovable property.

Judgment

Submission	Court’s Treatment
USO is absolute	Rejected. The Court held that the duty to supply electricity under Section 43 is not absolute.
Supply is with respect to consumer	Accepted. The Court held that the supply of electricity is with respect to the consumer and not the premises.
Regulatory regime does not allow recovery from new owners	Rejected. The Court held that the regulatory regime allows for recovery of dues from new owners.
Electricity arrears do not constitute charge over property	Accepted. The Court held that electricity arrears do not constitute a charge over property unless there is a specific statutory provision.
Section 56(2) of the Electricity Act, 2003 bars recovery	Rejected. The Court held that Section 56(2) only limits the power to disconnect and not other recovery methods.
“As is where is” does not include past dues	Rejected. The Court held that “as is where is” includes all existing liabilities unless stated otherwise.

How each authority was viewed by the Court:

Isha Marbles v. Bihar State Electricity Board [CITATION]: Distinguished as it did not deal with statutory rules or conditions of supply dealing with the imposition of liability for the payment of electricity dues on a subsequent purchaser.
Ahmedabad Electricity Co. Ltd. v. Gujarat Inns (P) Ltd [CITATION]: Followed in holding that the connection sought by auction purchasers is a fresh connection.
Hyderabad Vanaspathi Ltd v. Andhra Pradesh State Electricity Board [CITATION]: Followed in holding that terms and conditions of supply are statutory in character.
Dakshin Haryana Bijli Vitran Nigam Ltd v. M/s Paramount Polymers Pvt Ltd [CITATION]: Followed in holding that conditions of supply can include recovery of dues from transferees.
Paschimanchal Vidyut Vitran Nigam Limited v. DVS Steels and Alloys Private Limited [CITATION]: Followed in holding that a licensee can insist upon fulfillment of statutory rules.
Telangana State Southern Power Distribution Co. Ltd. v. Srigdhaa Beverages [CITATION]: Followed in reiterating that electricity dues are statutory and cannot be waived.

What weighed in the mind of the Court?

The Supreme Court’s reasoning emphasized several key points:

✓ Statutory Obligations: The Court stressed that the Electricity Act, 2003, and related regulations impose specific obligations on both distribution licensees and consumers. The duty to supply electricity is not absolute but subject to compliance with the Act and its subordinate legislation.
✓ Public Interest: The Court highlighted that electricity is a public good and that the law must protect public utilities. The recovery of dues is necessary to maintain the financial health of distribution licensees and ensure a continued supply of electricity.
✓ Balance of Equities: While upholding the statutory powers of Electric Utilities, the Court also considered the position of auction purchasers who had acquired properties through court sales. It acknowledged that a long-drawn litigation process should not be to the detriment of the litigants.
✓ “As is where is” Basis: The Court clarified that the “as is where is” condition in auction sales includes all existing liabilities unless stated otherwise, placing a responsibility on the purchaser to conduct due diligence.
✓ Interpretation of Statutes: The Court interpreted the relevant provisions of the Electricity Act, 2003, and related regulations in a manner that promoted the objectives of the Act while protecting the rights of both distribution licensees and consumers.

Sentiment Analysis of Reasons Given by the Supreme Court:

Reason	Sentiment Percentage
Statutory Obligations	30%
Public Interest	30%
Balance of Equities	20%
“As is where is” Basis	10%
Interpretation of Statutes	10%

Fact:Law Ratio

Category	Percentage
Fact	20%
Law	80%

Logical Reasoning:

Issue: Is the Universal Service Obligation (USO) absolute?

↓

Court’s Reasoning: Section 43 is not absolute and subject to other provisions of the Act.

↓

Conclusion: USO is not absolute; it is subject to charges and compliances.

Issue: Is electricity supply with respect to the premises or the consumer?

↓

Court’s Reasoning: The emphasis is on the consumer, with the premises being the identified site for supply.

↓

Conclusion: Supply is with respect to the consumer, though the premises are identified for the situs of supply.

Issue: Is a connection sought by a subsequent owner a reconnection or a fresh connection?

↓

Court’s Reasoning: A new owner seeking a connection is a fresh connection, regardless of prior supply to the same premises.

↓

Conclusion: It is a fresh connection.

Issue: Can Electric Utilities recover arrears from new owners?

↓

Court’s Reasoning: Yes, through statutory regulations or conditions of supply.

↓

Conclusion: Electric Utilities can recover dues from new owners as a precondition for supply.

Issue: Do electricity arrears constitute a charge over the premises?

↓

Court’s Reasoning: No, unless there is an express statutory provision. Such a charge can be created by subordinate legislation.

↓

Conclusion: Electricity arrears do not automatically become a charge over the premises.

Issue: What is the effect of Section 56(2) of the Electricity Act, 2003?

↓

Court’s Reasoning: It limits the power to disconnect after two years but does not bar other recovery methods.

↓

Conclusion: Section 56(2) only limits the power to disconnect and not other recovery methods.

Issue: What is the effect of “as is where is” basis?

↓

Court’s Reasoning: It includes all existing liabilities, unless stated otherwise.

↓

Conclusion: “As is where is” basis includes all existing liabilities.

Key Takeaways

✓ Auction purchasers can be held liable for the electricity dues of previous owners if there are valid statutory regulations or conditions of supply.
✓ The “as is where is” clause in auction sales puts the purchaser on notice of all existing liabilities.
✓ While Section 56(2) limits the power to disconnect electricity supply after two years, it does not bar other recovery methods.
✓ The Court has balanced the interests of both the Electric Utilities and the auction purchasers by waiving the interest on the principal dues.

Directions

The Supreme Court directed Electric Utilities to waive the outstanding interest accrued on the principal dues from the date of application for supply of electricity by the auction purchasers.

Development of Law

The ratio decidendi of the case is that while electricity dues do not automatically constitute a charge on property, Electric Utilities can recover such dues from subsequent owners or occupiers through statutory regulations and conditions of supply. The judgment clarifies the interpretation of Section 43 of the Electricity Act, 2003, and the scope of regulatory powers under Section 50. It also provides a framework for understanding the implications of auction sales conducted on an “as is where is” basis. This case overturns the previous position of law established in Isha Marbles (supra) where it was held that an auction purchaser cannot be made liable for the dues of the erstwhile owner.

Conclusion

The Supreme Court’s judgment in K C Ninan vs. Kerala State Electricity Board clarifies the liability of auction purchasers for the electricity dues of previous owners. The Court held that while electricity dues do not automatically become a charge on the property, Electric Utilities can recover such dues through valid statutory regulations and conditions of supply. The judgment also provides clarity on the interpretation of the “as is where is” clause in auction sales and the scope of regulatory powers of State Commissions under the Electricity Act, 2003. This decision provides a balanced approach, protecting both the interests of Electric Utilities and auction purchasers.

Source: K C Ninan vs. Kerala State Electricity Board