1. Auction purchase of premises under State Financial Corporations Act — Refusal of electricity reconnection due to previous owner's arrears — Dispute over liability of auction-purchaser. (Para 2 , 3 , 5 , 8 , 46 , 47 )
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1995 Supreme(SC) 188
SUPREME COURT OF INDIA
BEFORE P.B. SAWANT, S. MOHAN AND K.S. PARIPOORNAN, JJ.
Civil Appeal No. 1418 of 1995
ISHA MARBLES
Versus
BIHAR STATE ELECTRICITY BOARD AND ANOTHER
With
Civil Appeal No. 1420 of 1995
BIHAR STATE ELECTRICITY BOARD AND OTHERS
Versus
WAXPOL INDUSTRIES AND ANOTHER
With
Civil Appeal No. 1419 of 1995
CHAIRMAN, BIHAR STATE ELECTRICITY BOARD AND OTHERS
Versus
SUMAN PACKAGING (P) LTD.
With
Civil Appeal No. 1422 of 1995
BIHAR STATE ELECTRICITY BOARD
Versus
ABHAY KUMAR AND OTHERS
And
Civil Appeal No. 1421 of 1995
BIHAR STATE ELECTRICITY BOARD
Versus
NORTH EAST FERTILIZERS AND OTHERS
Civil Appeals Nos. 1418-22 of 1995{From the Judgment and Order dated 5-9-1991 of the Patna High Court in C.W.J.C. No. 1536 of 1991(R)}
Decided on 3-2-1995
Advocates appeared:
Gopal Subramanium, Senior Advocate and S.B. Upadhyay, Ranjit Kumar and Pramod Swarup, Advocates, for the Appellants;
R.P. Bhatt, Senior Advocate (M.P. Jha and S. Muralidhar, Advocates, with him) for the Respondents.
Advocates:
GOPAL SUBRAMANIUM, M.P.Jha, PRAMOD SVARUP, R.P.BHATT, RANJIT GHOSAL, S.B.Upadhyay, S.MURALIDHARAN
GOPAL SUBRAMANIUM, M.P.Jha, PRAMOD SVARUP, R.P.BHATT, RANJIT GHOSAL, S.B.Upadhyay, S.MURALIDHARAN
An auction-purchaser of a premises is not liable for the previous owner's outstanding electricity dues. As the relationship between the Electricity Board and the consumer is contractual, the Board cannot enforce such liability against a third-party purchaser as a condition precedent for granting a new electricity connection.
Headnote:
State Financial Corporations Act, 1951 - Section 29(1) – Possession - Mortgaged Assets - Appellant Purchaser a Mortgaged Assets - Auction-purchaser is liable to meet the liability of old consumer of electricity to premises which is purchased by him in auction sale from Bihar State Financial Corporation - Appellant is purchaser of mortgaged assets of M/s Patel Industries, in an open auction sale held by Corporation - Appellant has paid a substantial sum towards the said transaction and thereafter got the possession of the industry - Electrical connection of the premises was disconnected when the appellant got possession of the said unit. The appellant was called upon to discharge all the liabilities of the previous consumer. This was challenged stand taken by the writ petitioner before the High Court was: there is a transfer of a unit; it had not been supplied with electricity; hence, it had no occasion to consume electricity; and as transferee it is not liable for energy consumed before such transfer. The writ petition was dismissed by a Division Bench of High Court holding that the Bihar State Electricity Board would be entitled to take action in accordance with law – Held, There is great reason and justice in holding as above. Electricity is public property. Law, in its majesty, benignly protects public property and behoves everyone to respect public property, courts must be zealous in this regard. But, the law, as it stands, is inadequate to enforce the liability of the previous contracting party against auction-purchaser who is a third party and is in no way connected with the previous owner/occupier - It may not be correct to state, if we hold as we have done above, it would permit dishonest consumers transferring their units from one hand to another, from time to time, infinitum without the payment of the dues to extent of lakhs and lakhs of rupees and each one of them can easily say that he is not liable for the liability of the predecessor in interest. No doubt, dishonest consumers cannot be allowed to play truant with the public property but inadequacy of the law can hardly be a substitute for overzealousness - Relevant portions of details of Directorship of Waxpol Industries and Promoters of Neo Chemical and Metal Products as on date of purchase of mortgaged assets – Appeal allowed
Act Referred
Judgement Key Points
Key Points: - The auction-purchaser's liability for old electricity dues of the previous consumer under Section 29(1) of the State Financial Corporations Act and Electricity Act provisions (!) (!) - Whether reconnection of electricity can be denied to an auction-purchaser who has acquired mortgaged assets, where the previous consumer had defaulted (!) (!) - The correct construction of the Board’s remedies (Section 24, Section 22, Clause VI of the Schedule, and related regulations) in relation to auction-purchasers and pre-existing arrears (!) (!) (!) (!) (!)
Question 1?
Question 2?
Question 3?
Legal Category Hierarchy
- energy law
- administrative law
- contract law
- property law
Table of Contents
2. Whether electricity arrears constitute a charge on premises or a personal contractual liability of the consumer — Applicability of Section 24, Electricity Act to third-party purchasers. (Para 15 , 16 , 17 , 20 , 21 , 24 , 29 , 32 )
3. Liability for electricity consumption is contractual and personal to the consumer — No statutory charge on property — Board cannot enforce contractual debts against third-party auction-purchasers. (Para 11 , 12 , 44 , 49 , 55 , 56 , 57 , 61 )
4. An auction-purchaser is not liable for previous electricity arrears as a condition for reconnection, as such liability is personal to the contracting consumer. (Para 56 , 61 )
5. Auction-purchasers held not liable for previous electricity dues, except where the purchaser is effectively the same entity as the defaulting consumer. (Para 64 , 65 , 66 , 67 )
6. Is an auction-purchaser of a premises liable for the previous owner's electricity arrears as a condition for reconnection?
No. The liability to pay electricity charges is contractual and personal to the consumer who entered into the agreement with the Board. It is not a charge on the property; therefore, a third-party auction-purchaser cannot be forced to clear arrears as a condition for reconnection. (Para 55 , 56 , 61 )
7. Does Section 24 of the Electricity Act, 1910, allow an electricity board to deny reconnection to a new owner based on previous dues?
Section 24 allows the licensee to stop supply if a consumer neglects to pay. However, this power applies to the defaulting consumer. It does not create a liability for a subsequent purchaser who is not a party to the original contract. (Para 44 , 51 , 52 , 55 , 56 )
8. Under what circumstances can a subsequent occupant be held liable for previous electricity arrears?
If the subsequent purchaser is not a distinct legal entity but is effectively the same entity as the previous defaulting consumer (for example, sharing the same promoters or directors), the liability for past arrears may be maintained. (Para 63 , 64 )
9. What is the legal nature of the relationship between an electricity board and a consumer?
The relationship is purely contractual, based on a written contract and regulations. Consequently, the Board cannot seek enforcement of this contractual liability against a third party who was not a party to the agreement. (Para 16 , 23 , 56 )
JUDGMENT
MOHAN, J.- Leave granted.
2. All these appeals can be dealt with by a common judgment since the issue that arises for our consideration is one and the same, namely, whether the auction-purchaser is liable to meet the liability of old consumer of electricity to the premises which is purchased by him in the auction sale from Bihar State Financial Corporation (hereinafter referred to as the Corporation) under Section 29(1) of the State Financial Corporations Act, 1951 (hereinafter referred to as the "Corporations Act")?
Civil Appeal No. 1418 of 1995 [arising out of SLP (C) No. 617 of 1992] M/s Isha Marbles
3. In this case, the appellant is a purchaser of the mortgaged assets of M/s Patel Industries, Daltonganj in an open auction sale held by the Corporation. The appellant has paid a substantial sum towards the said transaction and thereafter got the possession of the industry on 31-1-1991. However, the electrical connection of the premises was disconnected when the appellant got possession of the said unit. The appellant was called upon to discharge all the liabilities of the previous consumer. This was challenged in CWJC No. 1536 of 1991 before the High Court of Patna, Ranchi Bench, Ranchi. The stand taken by the writ petitioner before the High Court was: there is a transfer of a unit; it had not been supplied with electricity; hence, it had no occasion to consume electricity; and as transferee it is not liable for energy consumed before such transfer. The writ petition was dismissed by a Division Bench of the High Court holding that the Bihar State Electricity Board (hereinafter referred to as the Board) would be entitled to take action in accordance with law.
4. Aggrieved by the impugned judgment the appellant has come in appeal before this Court.
Civil Appeal No. 1420 of 1995 [arising out of SLP (C) No. 16227 of 1992] Bihar State Electricity Board v. Waxpol Industries Ltd.
5. In this case, the facts are slightly different. The Bihar Financial Corporation sanctioned loan to M/s Neo Chemicals and Metal Products (P) Ltd. for setting up a unit for manufacture of Graphite Beneficiation. The said unit occupied Plots Nos. 1819 and 1820 at P.O. Village Booti, District Ranchi, Bihar. For non-payment of electricity bills the electricity was disconnected. They were outstanding to the tune of Rs 2,35,924.78 against such electricity consumption charges. The Corporation had advanced a sum of Rs 3,40,000 to M/s Neo Chemicals. To secure this loan, the properties of the Company had been hypothecated/mortgaged. In order to realise this sum the properties were sought to be sold under Section 29 of the Corporations Act. The sale was through an advertisement. Waxpol Industries, the respondent, filed its tender. That was the highest. Therefore, the properties were sold in favour of the respondent for a consideration of Rs 2,97,578.27.
6. Waxpol Industries applied for electricity connection to the Board. After the purchase, in that application, Column No. 6 required Waxpol Industries to state whether it would undertake to clear the previous dues. As against this, it was stated "does not apply". Therefore, on 3-1-1986, the Board informed Waxpol Industries that it was unable to restore electricity as its dues had not been paid either by the consumer or by the subsequent occupant of the said premises.
7. Aggrieved by this, the respondent herein preferred CWJC No. 25 of 1986. By the impugned judgment, the writ petition was allowed on the ground that the present occupants are free from any encumbrance or liability towards the payment of outstanding electricity dues; Neo Chemicals and Waxpol Industries are two distinct companies and as such two separate legal entities. In view of the judgment in Ram Krishna Choudhary v. Bihar State Electricity Board{CWJC No. 204 of 1984} disposed of on 15-10-1990 unless there is a clause that the auction-purchaser shall not only have the assets but also the liability including the liability of the Electricity Board, the
