Supreme Court: The 3-judge bench of Dr DY Chandrachud*, CJI and Hima Kohli and PS Narasimha, JJ has held thar the duty to supply electricity under Section 43 of the Electricity Act 2003 is not absolute and is subject to such charges and compliances stipulated by the Electric Utilities as part of the application for supply of electricity.
The ruling came in a detailed judgment running into almost 180 pages in a batch of cases where new owners of properties, purchased in auction sales, have been denied electricity connections due to the previous owners’ failure to pay their electricity dues. The previous owners had borrowed money or raised loans on the security of their premises. Even went into liquidation in some cases. The Electric Utilities refused to provide an electricity connection unless the auction purchaser paid the dues of the previous owner. When the matter came before the Supreme Court, the following issues were dealt with:
Duty to supply electricity under Section 43 of the Electricity Act, 2003 not absolute
It was argued by the Electric Utilities that the duty to supply electricity under Section 43 of the 2003 Act is not absolute. Accepting the argument, the Court held that the duty to supply electricity under Section 43 of the 2003 Act is not absolute and is subject to such charges and compliances stipulated by the Electric Utilities as part of the application for supply of electricity.
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. 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. 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.
Premises cannot be a defaulter
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.
While Sections 43 and 44 of the 2003 Act talk about supply of electricity to premises, 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.
“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. Perforce, the premises cannot be held to be a defaulter and no dues can be attached to the premises of the consumer.”
Reconnection versus fresh connection
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.
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.
Regulatory power of the Electricity Boards/State Commissions
(i) 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.
(ii) 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”. Such an authority also extends to stipulating conditions for recovery of electricity arrears of previous owners from new or subsequent owners. Hence, 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.
(iii) 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;
(iv) 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.
(v) The Electricity Supply Code providing for recoupment of electricity dues of a previous consumer from a new owner have a reasonable nexus with the objects of the 2003 Act. 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.
Whether arrears of electricity can become a charge or encumbrance over 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. In fact, the arrears of electricity cannot become a charge or encumbrance over the premises, in the absence of an express provision of law in the 1910 Act, 1948 Act or 2003 Act.
Hence, in general, 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.
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
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.
Implication of Section 56(2) on recovery of electricity dues by Electric Utilities
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.
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.
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 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”.
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.
Hence, it could not be held 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.
Implication of an auction-sale of premises on “as is where is” basis, with or without reference to electricity arrears of the premises
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.
Equity and Fairness
Exercising its constitutional authority under Article 142 to render complete justice and bring about substantial justice, the Supreme Court, with an intent to balance the equities and consider public interest, particularly since many auction-purchasers are commercial entities who require electricity for their business operations, directed the Electric Utilities to waive outstanding interest accrued on principal dues from the date of application for supply of electricity by auction purchasers. This direction came in the light of the fact that more than two decades have passed in litigation since the issue first arose. It observed that,
“Electricity being a necessity for operation of any commercial venture, denial of electricity connections to the auction-purchasers for an indefinite period of time resulted in loss of business. The delay in the court proceedings should not be to the further detriment of the litigants.”
[KC Ninan v. Kerala State Electricity Board, 2023 SCC OnLine SC 663, decided on 19.05.2023]
*Judgment Authored by: CJI DY Chandrachud
Advocates who appeared in this case :
For Electric Utilities: Senior Advocates Sarvashri M G Ramachandran, Ranjit Kumar, Vijay Hansaria, Ajit Bhasme;
For Auction Purchasers: Senior Advocates Sarvashri Shekhar Naphade, V Giri, PS Patwalia, S Ganesh, and Advocates Puneet Jain, Amar Dave, EMS Anam, DN Ray, T Srinavasa Murthy, Bharat Patel, Ram Lal Roy, Purvish Jitendra Malkan, and MY Deshmukh.