CASE BRIEF

SUPREME COURT OF INDIA

KC NINAN V. KERALA STATE ELECTRICITY BOARD & ORS
[CIVIL APPEAL NO. 2019-2110 OF 2004 & BATCH]
BENCH: JUSTICE DR. DY CHANDRACHUD, HIMA KOHLI & PS NARSIMHA

BRIEF BACKGROUND OF THE CASE

1. The present batch of appeals (from the States of Kerala, Maharashtra, Gujarat, Assam
and West Bengal) deal with the question of disconnection of supply of electricity on account
of pending past dues of the previous owner for consumption of electricity on the premises and
subsequent denial for fresh connection to new owner till the dues are pending. This is derived
from the powers conferred under the subordinate legislation, notifications, supply codes or
state regulations.
2. In this regard, vide order dated 24 th August 2006 passed in the case of MSEB vs. Super &
Stainless Hi Alloy Ltd, the Supreme Court referred the civil appeals to a 3-judge bench and
matters of similar nature were tagged with it vide another order dated 1 st November 2007. The
moot issue to be addressed was “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?”
3. The Electricity Utilities, in light of the Electricity Act 1910 and 2003 (“the Act”), notified the
Conditions of Supply as per which, the new owners of the premises had to clear the
outstanding dues of the previous owners.
4. Prior to the Act of 2003, in Isha Marbles vs. State of Bihar1, the position was that an auction
purchaser cannot be asked to clear the past arrears of electricity dues as a condition precedent
to the grant of electricity.
5. However, in the case of Paschimanchal Vidyut Nigam Ltd. vs. DVS Steels & Alloys Private
Ltd2 the apex court observed that conditions of supply mandating the clearance of electricity
dues of previous owner by new purchaser before electricity is restored or new connection
given is not arbitrary.

ISSUES BEFORE THE COURT

1. Whether the Universal Supply Obligation is linked to the premises to which connection is
sought?
2. Whether connection sought by auction purchaser comprises a reconnection or fresh
connection; power to recover arrears falls within the regulatory regime of 2003 Act? Whether
the same can be provided vide subordinate legislation?
3. Whether the Acts of 1910 and 2003 have express provisions enabling the creation of charge
or encumbrance over the premises?
4. Whether bar on recovery after 2 years under Section 56(2) will have implication on civil
remedies and whether the implication of auction sale of premises on ‘as is where is” basis
with or without reference to electricity arrears of the premises?

1
1995 SCC (2) 648
2
(2009) 1 SCC 210
ARGUMENTS ADVANCED

Arguments By Electric Utilities:

1. The USO (Universal Supply Obligation under Section 43 of the Act) is not absolute and the
Applicant has to fulfil the obligation to pay the price as determined by the State Commission
to demand the supply of electricity. Further, Section 43(1) brings in compliance with other
provisions of the Act, including Section 50, through which State Commission can specify the
Electricity Supply code.
2. Further, the supply of electricity is with reference to premises which is the continued
identified place for supply of electricity, irrespective of any change in the owner or occupier.
The Electric Utilities (“EUs”) have to incur operation and maintenance cost and such liability,
if not fastened to the premises, would be borne by the general consumers since the same
would be factored in the fixation of tariff.
3. The condition of payment of outstanding dues is not a compulsory extraction of money and
does not require a primary legislation. It was further submitted that T&C of supply are framed
by independent generators in terms of Section 50 and 181(2)(x) of the Act. The Supply code
framed by state commission is a subordinate legislation and has a statutory character.
4. The Licensee has the right to insist on clearance of outstanding dues on the premises before
giving new connection.
5. Section 56(2) of the Act does not bar the recovery of electricity arrears and is only with
reference to bar on disconnection by the licensee. Further, a Condition of Supply to recover
electricity arrears is not barred by limitation. The right to deny connection till dues are cleared
is a continuing right.
6. The auction purchasers were put to notice of the requirement of clearing of dues as the public
auction-sale of the premises on “as is where is” bases would include a condition of
acknowledging all liabilities. Further, such an auction purchaser should verify and obtain no
dues certificate from the licensee. The purchaser also cannot deny knowledge of the
requirement to clear outstanding dues of premises when they are provided in the conditions of
supply.

Arguments By Auction Purchasers:

1. The Auction purchasers contended that Electricity constitutes goods under 7 th Schedule of the
Constitution as also under the Sale of Goods Act, 1930. The obligation under Section 43 of
the Act is not hedged by a condition to discharge the arrears incurred by the previous
consumer. Further, the “Price” under Section 43 does not constitute arrears. Also, the
statutory duty of a licensee to supply power on an application within one month of application
can only be prevented due to any natural disaster or other circumstances beyond its control.
The State Commission is not vested with any power to impose any other substantive
condition in form of clearance of arrears of previous owners.
2. The reference to “Premises” in the definition of “Consumer” is only to fix a situs inasmuch as
an ordinary manufacturer may insist on the consumer to come to his factory to take the supply
of goods, the licensee here is obliged to take the supply to the consumer’s premises.
3. The Act has not empowered the Electricity board to recover such dues of the previous
owner/occupier from the succeeding one. The liability to pay is only on the person to whom
such supply is made. The Conditions of Supply under Section 49 of the 1948 Act can be
prescribed in a contract with prospective consumer. Such conditions of supply do not have a
statutory character.
 4. The liability of one person cannot be enforced against another person vide a delegated
legislation. Here, neither the Act of 1910 nor 1948 provides any specific provision
empowering the board to recover such arrears from the new owners. Also, under the 2003 Act
no specific power has been conferred upon the state commission to add further substantive
conditions.
5. There is no provision under the 2003 Act for creating charge on the premises and the same
cannot be introduced vide a new Regulation as the subject matter is not covered under Section
50. It was further stated that Conditions of Supply are pure contractual and do not constitute
charge under Section 100 of TPA 1882. The State Commission under Section 50 can only
frame regulations for supply of electricity and has no power to provide for any fiscal exaction.
6. Under Section 56 of the Act, the right to disconnect the supply in default is related to
defaulting consumer. Further, Conditions of Supply cannot be used to resurrect a time-barred
debt.
7. The Condition “as is where is & whatever there is” is a feature of physical properties and
does not extend to claims that are not charges running with land. Further, in light of the Isha
Marbles judgment there was no obligation to ascertain the electricity dues.

Analysis

1. 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 occupier/ owner of such premise when an
application is made with all the necessary documents showing “necessary charges”, as
required by the Distribution Licensee. Further, a mere reading of Section 43 along with
Sections 45,46,47,48 and 50 makes it clear that right of an applicant to seek supply of
electricity is not absolute and is subject to the payments of charges, security deposit as well
as the terms and conditions imposed by the licensee. The court also observed that the term
“price” has to be given a broad approach to include all “tariffs” and “charges” that may be
determined by the appropriate commission and that the ambit of the term is wide enough to
include the statutory dues that the State Commission imposes by way of regulations under
Section 50. (Paras 29,36 and 41)
2. The court further observed that “supply” means sale of electricity to a consumer and it does
not indicate that such sale is vis-à-vis to the premise of the consumer. The expression “supply
of electricity to premises” u/s 43 and 44 is because of the fact that the licensee has to lay
down infrastructure to supply electricity to the consumer, at their premises. Also, it is the
consumer who is obligated to pay the charges on electricity and is liable in cases of default.
Thus, it is always the consumer who is supplied electricity and is held liable for defaulting on
payment of dues or charges and premises cannot be held to be a defaulter, neither any dues
can be attached to the premises of the consumer. (Paras 48,50,53,56)
3. The court while deciding on the issue of whether the electricity connection sought by a
subsequent owner constitutes a reconnection or fresh connection relied on the analogy drawn
in the Gujarat Inns case and observed that even if the premises are same to which electricity
had been supplied, it will still be considered as a fresh connection in the situation where a
different applicant/ auction purchaser applies for supply. (Para 62)
4. Under the 1948 Act, the board under Section 49 have been vested with wide powers to
prescribe the terms and conditions of supply and Section 79 empowers the board to make
regulations prescribing the principles governing the supply of electricity to consumers. Also,
in the Hyderabad Vanaspathi case any condition enacted under Sec 49 specifically the one
dealing with clearance of previous arrears will have a statutory character.
5. Further, under the 2003 act as well, the commission has plenary powers to regulate on matters
contained u/s 181 (2) including the supply code u/s 50. The commission thus, can notify a
supply code governing all matters pertaining to supply of electricity such as “recovery of
charges” and such authority extends to stipulating conditions for recovery of electricity
arrears of previous owners. (Paras 68,79,84)
6. The supply of electricity is for the public good and the conditions of supply and electricity
supply code which requires the payment of previous owner as a condition for the grant of
supply have a clear nexus to scheme of the parent legislation. Therefore, it is just and
reasonable for licensee to specify such conditions on a subsequent owner to protect their own
interests as also the welfare of the consumers. (Paras 90,91)
7. The electricity utilities can create a charge by framing subordinate legislation or statutory
conditions of supply enabling the recovery of electricity arrears from a subsequent transferee.
The court reasoned the observation by reiterating the fact that supply of electricity is for
public good and inability to recover the dues would negatively impact the functioning of
public utilities. Therefore, in larger public interest as also to lay down new infrastructure the
conditions incorporated in the subordinate legislations for recouping the electricity arrears is
justified and non-arbitrary. (Para 113)
8. The court observed that the period of limitation is relatable to the sum due under Section 56
of the Act. Further Section 59(2) provides that such sum due would not be recoverable after a
period of 2 years from when such sum becomes due. This implies that recovery under Section
56 relates to remedy of disconnection of supply. The Licensee is still entitled to recover
electricity arrears through civil remedies or in exercise of its statutory power under the
Conditions of Supply. (Para 131)
9. The premises were sold in auction sales on an “as is where is” basis which implies that the
purchaser would be acquiring the asset with all its existing rights, obligations and liabilities.
Here, it is for the purchaser to conduct proper due diligence and satisfy themselves with
respect to the circumstances like title, encumbrance and all other pending statutory dues. The
court further, held that disconnection of power is easily discoverable and any prudent auction
purchaser would enquire about the same and in a situation of disconnection he cannot assert
that he was oblivious of the existence of outstanding electricity dues. However, the
terminology of the clauses governing the auction sales must be taken into consideration, to
arrive at equitable decision. (Paras 133,142,143)
10. The court here gave much stress to the powers conferred under Article 142 of the Constitution
of India. It was stated that since the decision of Isha Marbles the law with respect to the
obligation of subsequent purchaser to clear the dues of the previous owner has been in flux.
The consequence of which was the conflicting opinions of various HCs where some ordered
the supply of electricity without insisting the subsequent purchaser to pay for the dues of
previous owner, whereas others required the new purchaser to clear the dues of previous
owner. (Para 328 j)
11. The Court upheld the validity of the subordinate legislation and its application on the auction
purchasers to make them liable for the outstanding dues. However, the EUs claims have been
made for interest on such arrears. (Para 325)
12. In this regard, the court held that supply of electricity is certainly a necessity for the operation
of any venture and denial of the same would result in huge losses for the operator. The Apex
Court, keeping in mind the factor of necessity and lapse of time, waived the outstanding
interest accrued on the principal dues from the date of application for supply of electricity by
the auction purchaser. (Para 326.327)