Distribution Licensee Insisting On Clearance Of Arreas Of Previous Consumer Before Resuming Electricity Supply Is Valid- SC Confirms

A Supreme Court Bench of Chief Justice Dr DY Chandrachud, Justice Hima Kohli, and Justice Pamidighantam Sri Narasimha has observed 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". 

Senior Counsel Sarvashri MG Ramachandran, Senior Counsel Ranjit Kumar, Senior Counsel Vijay Hansaria and Senior Counsel Ajit Bhasme appeared for Electric Utilities. Senior Counsel Sarvashri Shekhar Naphade, Senior Counsel V Giri, Senior Counsel PS Patwalia, and Senior Counsel S Ganesh appeared on behalf of the auction purchasers.

In this batch of appeals, 19 cases following a similar pattern of facts were included. The electricity supply was discontinued due to the failure of the previous owners to pay the dues for electricity consumption 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, generally on an “as is where is” basis. The new owners, who purchased the properties in the 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. The denial of electricity supply resulted in the institution of petitions under Article 226 before the High Court, leading to the judgments being appealed against before the Apex Court.

The Apex Court analyzed various provisions of the Electricity Act and concluded the following:

a) 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 the 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 a 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 the recoupment 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.

In light of the same, the Court directed the 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.

Cause Title: KC Ninan v. Kerala State Electricity Board & Ors.

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