An analysis of KC Ninan vs. Kerala State Electricity Board and Ors

On May 19, 2023, the Hon’ble Supreme Court of India in KC Ninan v. Kerala State Electricity Board and Ors. (‘KC Ninan’) held that the duty of supply of electricity under Section 43 of the Electricity Act, 2003 (‘Act’) is not absolute, and that it is subject to charges and compliances to be made by the new owner or occupier of the ‘premises’ as stipulated in the Act.

The Court held the same while answering the affirmative the question of ‘whether the electricity arrears that have accrued on a premises due to default of a previous owner, can be recovered from the new owner of such premises as a pre-requisite in order for the supply of electricity.'

At present, the supply, distribution, and generation of electricity are governed by the Act which comes from a long line of legislation [The Electricity Act, 1910, The Electricity (Supply) Act, 1948, and Electricity Regulatory Commissions Act, 1998] regulating the supply of electricity in India.

Section 43 of the Act deals with the distribution of electricity and casts a Universal Service Obligation (USO) on the distribution licensee to provide the supply of electricity to the premises [Section 2(51) of the Act] of an owner or occupier, subject to charges and conditions as specified therein and as per the Electricity Supply Code.

Pursuant to the Act, various Electric Utilities, including Electricity Regulatory Commissions (ERCs), Electricity Boards (EBs), and distribution licensees have laid down Conditions of Supply and promulgated Electricity Supply Codes.

Technically, the foundation of KC Ninan was already laid down in Dakshin Haryana Bijli Vitran Nigam Ltd. v. M/s. Paramount Polymers Pvt. Ltd., [AIR 2007 SC 2] and in Paschimanchal Vidyut Vitran Nigam Limited v. DVS Steels and Alloys Private Limited, [(2009) 1 SCC 210], wherein the Hon’ble apex court had held that licensees can impose statutory conditions for the supply of electricity, including the recovery of arrears of a previous owner from a subsequent owner/occupier.

The said position has since then been followed in subsequent decisions, but all facets in relation to the same had not been considered in its entirety, leading to KC Ninan.

Interestingly, in the present case, the Court has gone to great lengths to answer the said question and there is no iota of doubt left with respect to the position of law on the aspect of the liability of the subsequent owner to pay electricity arrears.

To avail supply [Section 2(70) of the Act], the property owner or occupant must file an application, and the said application has to be complete in all respects as under Section 43 of the Act.

The obligation upon the distribution licensee to supply electricity only begins when a complete application, along with all the necessary documents as well as the payment of necessary charges or price, is submitted by the proposed consumer.

Hence, a holistic reading of the above section clarifies that the duty to supply electricity is contingent upon certain restrictions and conditions. Hence, it is not an absolute right that is conferred upon the consumer.

The apex court has observed that since it may be transported, transferred, delivered, and owned like any other moveable asset, electricity qualifies as a mobile good and the charges paid to a distribution licensee are effectively costs, thereof.

According to the Act, firstly, a consumer is any individual who receives power for personal use or whose property is connected to the grid to receive electricity. Secondly, so long as the property is still linked to the power grid, the demand for assured charges or dues will exist even if the owner or occupier temporarily stops using electricity. The Act specifies that the obligation to provide power is to the owner or occupant of the property, not to the property itself.

The apex court, while noting the synergy between the consumer and premises as contemplated under the Act, reiterated that supply is granted to a consumer and not the premises. The Court observed that in the case of an auction or sale, it is the new consumer who applies for supply at the premises where previously an electricity connection had been granted to the previous owner or occupier.

The apex court, while examining the powers of the State Electricity Regulatory Commissions (ERCs) and the Electricity Boards (EBs) to prescribe conditions for supply in consonance with the Act, noted as under:

(a) The Court while referring to PTC India Ltd. v. CERC, [(2010) 4 SCC 603] observed that ERCs can frame regulations that will be valid, provided such regulations satisfy two conditions: first, they must be consistent with the provisions of Act; and second, they must be made for carrying out the provisions of the Act.

(b) Any condition or restriction enacted by any ERCs/EBs, will bear statutory status. Further, when a clause incorporating such condition is inserted in any agreement entered into by the consumer, then such contract to this extent becomes statutory, and the obligations set forth therein become statutory obligations enforceable by an ERC/EB against third parties, including the new owners of the premises in question. 

(c) Section 181(2) empowers an ERC to regulate on certain matters under the Act, including the Supply Code, under Section 50 of the Act which governs all conditions for the supply of electricity.

(d) The legislative power included under Section 181 read with Section 50 of the Act is comprehensive enough to enable an ERC to provide for a statutory charge in the absence of a provision in the parent statute providing for the establishment of such a charge.

(e) The authority to disconnect supply as a measure of recovery under Section 56 of the Act is independent of the right and authority to initiate recovery proceedings such as a civil suit against the defaulting consumer. The Supply Code's provisions for recovery of arrears from a new owner have an equitable connection to the objectives of the Act.

It is not stated in the previous legislation or the Act that unpaid energy bills would be considered as a charge against the property or that such a charge would be enforceable without prior notice against a transferee. The Court opined that 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.

In the event of a payment default for power charges, Section 56 allows for the disconnection of the electrical supply. The limitation period of two years set forth in Section 56(2) applies to the licensee's or generating company's legal right to interrupt the supply.

Further, the said section, states that no sum due from a consumer "under this section" shall be recoverable after a period of two years from the date on which such sum became first due unless such sum has been continuously demonstrated as recoverable as arrears of charges for electricity supplied, and the licensee shall not interrupt the supply of electricity.

The amount owed, under Section 56, relates to the failure to pay for regular electricity charges. However, the right to the recovery of ‘other charges’ under the Act may still subsist.

Therefore, it was held that it could not be ruled that limitation under Section 56(2) bars the recovery of arrears against the former consumer or from a subsequent transferee in the exercise of the statutory authority under the applicable Conditions of Supply. Moreover, the licensee is permitted to recover electrical arrears through civil remedies or by using its statutory authority under the terms of supply.      

The Court held that the phrases "as is where is"; "as is what is basis"; "as is where is, whatever there is and without recourse basis" imply that the seller does not assume responsibility for the property being 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.

The Supreme Court in the instant batch of cases has, while validating the power of the ERC or EB to issue regulations with respect to the collection of arrears, elaborately explained how a subsequent purchaser or occupier of the premises is under an obligation to pay the ‘price’ or ‘charges’ as prescribed by ERCs/EBs in order to avail electricity supply, if that was one of the conditions of the sale or auction which he had constructive notice of.

However, an important yet relevant aspect that the apex court does not touch upon is the nature and kind of charges that can be imposed upon such consumers, especially as a pre-condition to the supply of electricity.

As stated by the apex court in KC Ninan, the term price or charge is not defined in the Act and precedents need to be referred to in order to understand the ambit and scope of such terms for individual cases. Hence, in the absence of such definition, the appropriate ERC or EB would be free to claim any charge under the Act. Therefore, one has to wait and watch how this judgment is implemented by the distribution licensees and Utilities and what regulations are formulated, in light of the observations made by the Hon’ble apex court.

Additionally, the arrears in question in the judgment accrued in relation to defaults in payment of regular electricity charges. But, according to the authors, the arrears of electricity may not be limited to only such charges. 

Illustratively, arrears may be in the form of outstanding dues for unauthorized use of electricity under Section 126, or may have accrued due to part payment or undercharging of bills, wrong application of tariff, faulty meter issues, etc. which are distinct and not attributable to a default in the payment of regular electricity bills, but arise (generally) due to fault of distribution licensee and not the consumer. Nonetheless, the payment thereof is obligated upon the consumers. In such case(s), the question arises as to what all charges can an ERC or EB recover from the subsequent owner or occupier.

About the author: Bhairavi S N is a Senior Associate at Saga Legal.

Disclaimer: The views and opinions expressed in this article are those of the author(s) alone and meant to provide readers with an understanding of the judgment passed in the KC Ninan case and issues relating to recovery of arrears under the Electricity Act, 2003. The contents of the aforesaid article do not necessarily reflect the official position of Saga Legal.

The readers are suggested to obtain specific opinions/advise with respect to their individual case(s) from professionals/experts and not to use this article in place of expert legal advice.