LIABILITY OF THE LAST OWNER

[Mr. M. GOVINDARAJAN]

In ‘Telangana State Southern Power Distribution Company Limited and another v. Srigdhaa Beverages’ – 2020 (6) TMI 37 - SUPREME COURT, the respondent is an auction-purchaser of a unit owned by SB Beverages Private Limited, which failed to pay its dues, resulting in the auction by Syndicate Bank (Secured Creditor) under the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002.  On account of failure to repay a loan, the creditor, Syndicate Bank, brought the property (mineral water bottling plant) to auction for which an E-auction sale notice dated 25.5.2017 was issued in this behalf, in which the respondent was the successful auction-purchaser.

Some of the relevant terms and conditions of the auction notice are-

• The successful bidder shall bear the stamp duties, charges including those of sale certificate, registration charges, all statutory dues payable to central/state government, taxes and rates and outgoing, both existing and future relating to the properties.
• The property is sold in “AS IS WHERE IS, WHAT IS THERE IS AND WITHOUT ANY RECOURSE BASIS” in all respects and subject to statutory dues if any. The intending bidders should make discrete enquiry as regards any claim, charges/encumbrances on the properties, of any authority, besides the bank’s charges and should satisfy themselves about the title, extent, quality and quantity of the property before submitting their bid. For any discrepancy in the property the participating bidder is solely responsible for all future recourses from the date of submission of bid.
• No claim of whatsoever nature regarding the property put for sale, charges/encumbrances over the property or on any other matter etc., will be entertained after submission of the bid/confirmation of sale.
• The Authorized Officer will not be responsible for any charge, lien, encumbrance, property tax dues, electricity dues, etc., or any other dues to the Government, local authority or anybody, in respect of the property under sale.

 The sale deed dated 29.9.2017 executed in pursuance of the auction, which provided for the sale ‘made free from all encumbrances known to the Secured Creditor.’ An indemnity was provided by the vendor to the respondent against “any loss arising out of any defect in the title, including recovery of statutory liabilities taxes, as also litigation expenses arising out of such defects in title.

The respondent applied to appellant No.1 seeking sanction of a 500 KVA connection required for running the bottling plant.   This request was denied on the ground that there were previous electricity dues to the tune of ₹ 50,47,715, as on 26.10.2017.  The Department asserted its right to recover this amount even from the new purchaser (i.e. respondent), based on a reading of Clauses 5.9.6 and 8.4 of the General Terms and Conditions of Supply of Distribution & Retail Supply Licensees in Andhra Pradesh.  The said clause 5.9.6 provides that on the termination of the LT or HT Agreement, the company is entitled to dismantle the service line and remove the materials, Meter, cut out etc. After termination of the Agreement, the consumer shall be treated as a fresh applicant for the purpose of giving supply to the same premises when applied for by him provided there are no dues against the previous service connection.  Clause 8.4 provides that the seller of the property should clear all the dues to the Company before selling such property. If the seller did not clear the dues as mentioned above, the Company may refuse to supply electricity to the premises through the already existing connection or refuse to give a new connection to the premises till all dues to the Company are cleared.

Against the refusal of a 500  KVA connection the respondent filed a writ petition before the High Court, Telangana.  The respondent prayed to quash of these demands predicated on reasoning that as a subsequent purchaser, the respondent was not responsible for the dues of the earlier owner.   The High Court allowed the writ petition and quashed the demand on the respondent by the Department.  The Department filed appeal against the order of High Court before the Division Bench.  The Division Bench dismissed the appeal filed by the Department.  Therefore the Department filed appeal before the Supreme Court.

The Supreme Court considered the moot point of law, which arised for consideration is whether the liability towards previous electricity dues of the last owner could be mulled on to the respondent.

The Supreme Court elucidated the position in the context of Section 24 of the Electricity Act, 1910, to emphasize that under Section 2(c) of the Electricity Act, a consumer means any person who is supplied with energy, and since liability to pay electricity dues is fastened only on the consumer, at the relevant time, the purchaser was not the consumer. It has also been stated that in the absence of consumption of electricity, the subsequent purchaser was merely seeking reconnection without there being any statutory dues towards consumption charges. 

The Supreme Court relied on the judgment in ‘Hyderabad Vanaspathi Ltd. v. A.P. State Electricity Board & Others’  -  1998 (4) TMI 566 - SUPREME COURT in which it was held that the dues under the terms and conditions of supply partake the character of statutory dues.  The mere fact that agreements were entered into with every consumer only served the purpose of bringing to the notice of the consumer the terms and conditions of supply, but did not make the dues purely contractual in character

The Supreme Court relied on another judgment in ‘Dakshin Haryana Bijli Vitran Nigam Ltd. Versus M/s. Paramount Polymers Pvt. Ltd. - 2006 (10) TMI 462 - Supreme Court in which it was held that if a transferee desires to enjoy the service connection, he shall pay the outstanding dues, if any, to the supplier of electricity and a reconnection or a new connection shall not be given to any premises where there are arrears on account of dues to the supplier unless they are so declared in advance.

The Supreme Court observed that as an auction purchaser bidding in an ‘as is where is, whatever there is and without recourse basis’, the respondent would have inspected the premises and made inquiries about the dues in all respects.  In the auction notice there is a specific mention of the quantification of dues of various accounts including electricity dues. The respondent was, thus, clearly put to notice in this behalf.

The Supreme Court relied on a judgment to support its above findings in ‘Paschimanchal Vidyut Vitran Nigam Limited & Ors. v. DVS Steels and Alloys Private Limited & Ors.’ -  2008 (11) TMI 736 - SUPREME COURT in which it was held that the distributor can insist upon fulfillment of the requirements of such rules and regulations so long as such rules and regulations or the terms and conditions are not arbitrary and unreasonable. A condition for clearance of dues cannot per se be termed as unreasonable or arbitrary.

Even where the pendency of electricity dues was not mentioned in the terms & conditions of sale, and it was held in those facts that the dues could not be mulled on to the subsequent transferee.

It was   urged before the Supreme Court that there is some ambiguity on the aspect of liability of dues of the past owners who had obtained the connection.   The Supreme Court emphasized the following-

• That electricity dues, where they are statutory in character under the Electricity Act and as per the terms & conditions of supply, cannot be waived in view of the provisions of the Act itself more specifically Section 56 of the Electricity Act, 2003 (in pari materia with Section 24 of the Electricity Act, 1910), and cannot partake the character of dues of purely contractual nature.
• Where, as in cases of the E-auction notice in question, the existence of electricity dues, whether quantified or not, has been specifically mentioned as a liability of the purchaser and the sale is on “AS IS WHERE IS, WHATEVER THERE IS AND WITHOUT RECOURSE BASIS”, there can be no doubt that the liability to pay electricity dues exists on the respondent (purchaser).
• The debate over connection or reconnection would not exist in cases like the present one where both aspects are covered as per clause 8.4 of the General Terms & Conditions of Supply.

The Supreme Court is of the view that that the impugned orders cannot be sustained and are accordingly set aside while opining that appellant No.1 would be well within its right to demand the arrears due of the last owner, from the respondent-purchaser.