Supreme Court Decision: Recovery of Electricity Dues from Subsequent Property Owners Allowed

In a landmark judgment, the Supreme Court of India has ruled that the electricity dues of the previous owner of a property can be recovered from the subsequent owner or an auction purchaser. 

The ruling was given by a bench of the Apex Court comprising Chief Justice of India DY Chandrachud, Justice PS Narasimha and Justice Hima Kohli.

The ruling came in response to a reference made in a batch of cases, in which one of the issues was whether the electricity dues of the prior owner would constitute a charge on the property. 

The cases before the Court involved nineteen cases in which the electric utilities had refused to provide connection to new purchasers unless the dues of the previous owner were cleared. The premises involved in the cases were sold in auction on “as is where is basis” and the new owners who purchased the property in auction applied for electricity supply in the premises.

The Court answered the reference as follows:

• Firstly, the Court held that 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. 
• The duty to supply electricity is with respect to the owner or occupier of the premises. 
• The 2003 Act contemplates a synergy between the consumer and the premises. When electricity is supplied, the owner or occupier becomes the consumer only with respect to those particular premises for which electricity supply is sought.

The Court also held that for an application to be held as reconnection, the applicant has to seek connection to the same premises for which electricity was already provided. Even if the consumer is the same and premises are different, it will be considered as a fresh connection and not a reconnection.

The Court further held that the scope of the Act is wide enough to stipulate conditions for recovery of electricity arrears of previous owners from new or subsequent owners. This has a reasonable nexus with the objects of the 2003 Act. The rule making power under Section 181 read with Section 50 of the Act is wide enough to enable the regulatory commissions to provide for a statutory charge in the absence of the provisions in the plenary statute.

The Court also held that the power to initiate recovery proceedings by filing a suit against the defaulting consumer is independent of power to disconnect electricity supply as a means of the recovery.

The Court noted that the implication of the expression “as is where is basis” is that every intending bidder is put on notice that the seller does not take responsibilities in respect of the property offered for sale with regard to any liability for payment of dues like service charges, taxes of local authorities and other dues.

However, while answering these issues in favour of the electric utilities, the Court invoked its special powers under Article 142 of the Constitution to waive the outstanding interest accrued on the principal dues from the date of application for supply of electricity by the auction purchaser. The Court passed this direction having regard to the fact that the cases were pending in the Supreme Court for nearly two decades.

The ruling of the Supreme Court of India will have a significant impact on the power of electric utilities to recover electricity arrears of previous owners from new or subsequent owners. The Court has made it clear that the 2003 Act has the power to stipulate conditions for recovery of such arrears and also create a statutory charge in the absence of the provisions in the plenary statute. The Court has also clarified that the power to initiate recovery proceedings is independent of power to disconnect electricity supply as a means of the recovery.

The ruling will also have implications on auction sales of a premises on a “as is where is basis”. Intending bidders will now be aware that the seller does not take responsibilities in respect of the property offered for sale with regard to any liability for payment of dues like service charges, taxes of local authorities and other dues.(alert-success)