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Who is liable to pay outstanding statutory electricity dues after auction-sale of property? Supreme Court answers

Shruti Mahajan

The Supreme Court has reiterated that statutory electricity dues under the Electricity Act are liable to be paid by the purchaser of a property when such charges are specifically mentioned as a liability of the purchaser. (Telangana State Southern Power Distribution vs Srigdhaa Beverages)

A Division Bench of Justices Sanjay Kishan Kaul and KM Joseph was examining a case concerning liability to pay statutory electricity dues under the Electricity Act being sought by the concerned authorities from an auction-purchaser of a property.

The previous owner of mineral water bottling plant in Telangana had failed to pay dues with respect to the property, as a result of which Syndicate Bank auctioned the plant to make a sale under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act).

The bank floated an e-auction notice for this property and indicated that the property was being sold on “as is where is, what is there is and without any recourse basis”, as per Rules 8 and 9 of the Security Interest (Enforcement) Rules, 2002.

Clause 24 of the auction notice clarified that the sale on “as is where is, what is there is and without any recourse basis” was subject to statutory dues. Further, Clause 26 of the notice absolved the authorised officer carrying out the auction from liability for any charge, lien, encumbrance, property tax dues, electricity dues, etc.

A sale deed was executed subsequently and the respondent in the case became the owner of the mineral water bottling plant. The Court noted that a holistic reading of all the clauses rendered electricity dues outside of the sale consideration price, highlighting that the dues would be above the sale price paid.

When the respondent applied to the electricity authorities seeking sanction of a 500 KVA connection, the same request was rejected on the grounds that there were outstanding dues to be paid. These were statutory in nature as under Section 56 of the Electricity Act.

The respondent approached the Telangana High Court seeking quashing of these demands. A Division Bench of the High Court allowed the same, prompting the Telangana Electricity Board to approach the Supreme Court.

The Court observed that given that the sale of the premises was on “as is where is, whatever there is and without recourse basis”, the purchaser would have inspected the property before making the purchase, and would have inquired about outstanding dues.

Further, the Court noted that the e-auction notice had quantified all the outstanding dues, which included electricity dues, and the notice had clarified that these dues would be above the sale price paid. So, the respondent was certainly in the know of the outstanding charges.

In light of these facts and after placing reliance on judgments of the Apex Court in similar cases, the Bench concluded its findings to say that,

"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."

Moreover,

"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)."

Supreme Court

In light of these aspects, the Court allowed the appeal and set aside the judgment of the High Court as being unsustainable. It was further noted that the power distribution board was well within its right to demand payment of these charges.

Read the Judgment:

Telangana State Southern Power Distribution vs Srigdhaa Beverages.pdf
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