TELANGANA STATE SOUTHERN POWER DISTRIBUTION COMPANY LIMITED & ANR. versus M/S SRIGDHAA BEVERAGES on 1 June 2020

1. The respondent is an auction-purchaser of a unit owned byM/s. SB Beverages Private Limited, which failed to pay its dues, resultingin the auction by Syndicate Bank (Secured Creditor) under theSecuritisation and Reconstruction of Financial Assets and Enforcementof Security Interest Act, 2002 (hereinafter referred to as the ‘SARFAESIAct’). The moot point of law, which arises for consideration, is whetherthe liability towards previous electricity dues of the last owner could bemulled on to the respondent.

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2. The unit in question is a mineral water bottling plan situated inland measuring 1 acre 13 guntas in Sy. No. 283 at Rampally Village,Keesara Mandal, Medchal District. As mentioned aforesaid, on accountof failure to repay a loan, the creditor, Syndicate Bank, brought theproperty to auction for which an E-auction sale notice dated 25.5.2017was issued in this behalf, in which the respondent was the successfulauction-purchaser. In order to appreciate the controversy before us, itis necessary to reproduce some of the relevant clauses of the auctionnotice:

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“The property described below is being sold on “AS IS WHEREIS, WHATEVER THERE IS AND WITHOUT RECOURSE

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ABASIS” under the rule no.8 & 9 of the Security Interest(Enforcement) Rules (hereinafter referred to as the rules) for therecovery of the dues detailed as under:….….….….….….The total Rs.13,97,26,258.77 (Rs. Thirteen crores ninety seven lakhs Bamount due as twenty six thousand two hundred fifty eight and paisa seventy on 30-04-2017 seven) with future interest & costs till date of payment accounts no 1) 373OSLB140940002 & 2) 30151010006439 Details of For property no.01 Nil encumbrances For property no.02: The subsequent to our MOD, the over the following transactions observed in EC Cproperty, as known to the 1. As per the doc no 2611/2016 dated 15/06/2016, the mortgager bank has sold the property to the extent of 540 sq yds., to private party, for worth of Rs.972000/- 2. As per the doc no.657/2015 dated 05/02/2015, the mortgager has sold the property to the extent of 620.83 sq.yds. to The DExecutive officer Ramapally Gramapanchayat for worth of Rs.1242000/-. 3. As per the doc no 2721/2014 dated 05/08/2014, the mortgager has sold the property to the extent of 204.75 sq yds to The Gramapanchayat Executive officer Ramapally for worth of Rs.248000/-. EDetails of Rs.83,17,152/- (Eighty Three Lakhs Seventeen Thousand One outstanding dues Hundred Fifty Two Only) of Local Government (Property tax, Water sewerage, Felectricity bills, etc.)Reserve Price of For property no.01 Rs.77,63,000/- Property For property no.02 Reserve Price: Rs.5,83,37,000/- (Rupees five crores eighty three Lakhs thirty seven Thousand Only) Total 28 no of Machineries items reserve price: Rs.3,25,28,000/- G(three crores twenty five lakhs twenty eight thousand only) ….….….….….….TERMS AND CONDITIONSH….….….….….….

TELANGANA STATE SOUTHERN POWER DISTRIBUTION COMPANYLIMITED v. M/S SRIGDHAA BEVERAGES [SANJAY KISHAN KAUL, J.]

21. The successful bidder shall bear the stamp duties, chargesincluding those of sale certificate, registration charges, all statutorydues payable to central/state government, taxes and rates andoutgoing, both existing and future relating to the properties.

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24. The property is sold in “AS IS WHERE IS, WHAT IS THEREIS AND WITHOUT ANY RECOURSE BASIS” in all respectsand subject to statutory dues if any. The intending bidders shouldmake discrete enquiry as regards any claim, charges/encumbrances on the properties, of any authority, besides thebank’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 issolely responsible for all future recourses from the date ofsubmission of bid.

25. No claim of whatsoever nature regarding the property put forsale, charges/encumbrances over the property or on any othermatter etc., will be entertained after submission of the bid/confirmation of sale.

26. The Authorised Officer will not be responsible for any charge,lien, encumbrance, property tax dues, electricity dues, etc., or anyother dues to the Government, local authority or anybody, in respectof the property under sale.”

3. The aforesaid auction notice shows that the unit was being soldon “as is where is, what is there is and without any recourse basis”, asper Rules 8 & 9 of the Security Interest (Enforcement) Rules, 2002(hereinafter referred to as the ‘said Rules’). The aforesaid clauses ofthe E-auction sale notice show that the total outstanding dues were muchlarger, but the reserve price fixed was lower, and the actual saleconsideration of the successful auctioneer was Rs. 9,18,65,000, which isapproximately Rs.10 lakh more than the minimum reserve price. Clause24 reproduced aforesaid makes it clear that when the reference is to asale on “as is where is, what is there is and without any recourse basis”,the same is “in all respects and subject to statutory dues”. This clausewas further subject to another Clause 26, where the Authorised Officercarrying out the auction absolved himself of the liability for any charge,lien, encumbrance, property tax dues, electricity dues, etc. The purpose A

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Ais to emphasise that a holistic reading of all these clauses left little indoubt that the auction notice provided for a reserve price, with a bidbeing made about Rs.10 lakh over and above that, and certain nature ofcharges, lien, encumbrances, including electricity dues were clearly beyondthe sale consideration paid.

B4. We may next turn to the sale deed dated 29.9.2017 executed inpursuance of the auction, which provided for the sale “made free fromall encumbrances known to the Secured Creditor.” An indemnity wasprovided by the vendor to the respondent against “any loss arising out ofany defect in the title, including recovery of statutory liabilities taxes, asalso litigation expenses arising out of such defects in title.” This indemnityCwas, thus, confined to aspects mentioned in this clause, but relatable todefects in title, and not to other liabilities like electricity dues.

5. The problem for the respondent arose when he applied toappellant No.1 seeking sanction of a 500 KVA connection required forrunning the bottling plant. This request was denied on the ground thatDthere were previous electricity dues to the tune of Rs. 50,47,715, as on26.10.2017. Appellant No.1 asserted its right to recover this amounteven from the new purchaser (i.e. respondent), based on a reading ofClauses 5.9.6 and 8.4 of the General Terms and Conditions of Supply ofDistribution & Retail Supply Licensees in AP (for short ‘General TermsE& Conditions of Supply’), which clauses are reproduced hereinunder:

“5.9.6 Dismantlement of Service Line after Termination ofAgreement: On the termination of the LT or HT Agreement, thecompany is entitled to dismantle the service line and remove thematerials, Meter, cut out etc. After termination of the Agreement,Fthe consumer shall be treated as a fresh applicant for the purposeof giving supply to the same premises when applied for by himprovided there are no dues against the previous serviceconnection.”

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G“8.4 Transfer of Service Connection

The seller of the property should clear all the dues to the Companybefore selling such property. If the seller did not clear the dues asmentioned above, the Company may refuse to supply electricityto the premises through the already existing connection or refuse H

to give a new connection to the premises till all dues to theCompany are cleared.”

6. We may also take note of the fact that the aforesaid duespartake the character of statutory dues under the Electricity Act, 2003read with the General Terms & Conditions of Supply.

7. A writ petition was filed by the respondent before the HighCourt of Telangana and Andhra Pradesh seeking quashing of thesedemands predicated on a reasoning that as a subsequent purchaser, therespondent was not responsible for the dues of the earlier owner, and inthat behalf relied upon the judgments of this Court in Isha Marbles v.Bihar State Electricity Board & Anr.[1] and Southern PowerDistribution Company of Telangana Limited (through its CMD) &Ors. v. Gopal Agarwal & Ors.[2]Reliance on these judgments persuadedthe learned single Judge to issue directions quashing the demand ofappellant No.1. The appeal filed before the Division Bench against thisorder was also dismissed on 30.4.2018.

8. We have examined the submissions in the contours of theaforesaid controversy, and take note of the fact that in the case of IshaMarbles,[3] the sale was in pursuance of Section 29(1) of the StateFinancial Corporations Act, 1951, but the important aspect was that therewas no clause specifically dealing with the issue of electricity dues orsuch other dues, as in the present auction notice. This Court elucidatedthe position in the context of Section 24 of the Electricity Act, 1910, toemphasise that under Section 2(c) of the Electricity Act, a consumermeans any person who is supplied with energy, and since liability to payelectricity dues is fastened only on the consumer, at the relevant time,the purchaser was not the consumer. It has also been stated that in theabsence of consumption of electricity, the subsequent purchaser wasmerely seeking reconnection without there being any statutory duestowards consumption charges. We had specifically posed a question tothe learned counsel for the respondent in the order dated 15.11.2019,that whether, in the context of the judicial pronouncements sought to berelied upon, there was a specific clause in the nature of Clause 26 as inthe present E-auction sale notice, which absolved the Authorized Officerof various dues including “electricity dues”. On the conspectus of the 1 (1995) 2 SCC 648

2 (2018) 12 SCC 644

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Ajudgments referred to by the respondent, there were no such clauses inthe cases in question.

9. We may also notice that there have been subsequent judicialpronouncements dealing with this aspect of electricity dues. A threeJudge Bench of this Court has held that the dues under the terms andBconditions of supply partake the character of statutory dues (HyderabadVanaspathi Ltd. v. A.P. State Electricity Board & Ors.[4]). The merefact that agreements were entered into with every consumer only servedthe purpose of bringing to the notice of the consumer the terms andconditions of supply, but did not make the dues purely contractual incharacter.C

10. We can draw strength from the observations of this Court inDakshin Haryana Bijli Vitran Nigam Ltd. v. Paramount Polymers(P) Ltd.,[5] where there was a similarity as in the present case, of aspecific clause dealing with electricity dues. It was observed that insuch a scenario if a transferee desires to enjoy the service connection,Dhe shall pay the outstanding dues, if any, to the supplier of electricity anda reconnection or a new connection shall not be given to any premiseswhere there are arrears on account of dues to the supplier unless theyare so declared in advance.

11. We may also notice that as an auction purchaser bidding in anE“as is where is, whatever there is and without recourse basis”, therespondent would have inspected the premises and made inquiries aboutthe dues in all respects. The facts of the present case, as in the judgmentaforesaid, are more explicit in character as there is a specific mention ofthe quantification of dues of various accounts including electricity dues.FThe respondent was, thus, clearly put to notice in this behalf.

12. The same view in case of a similar clause has been taken inPaschimanchal Vidyut Vitran Nigam Limited & Ors. v. DVS Steelsand Alloys Private Limited & Ors.[6] It has been further observed thatif any statutory rules govern the conditions relating to sanction of aGconnection or supply of electricity, the distributor can insist upon fulfillmentof the requirements of such rules and regulations so long as such rulesand regulations or the terms and conditions are not arbitrary and H

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TELANGANA STATE SOUTHERN POWER DISTRIBUTION COMPANYLIMITED v. M/S SRIGDHAA BEVERAGES [SANJAY KISHAN KAUL, J.]

unreasonable. A condition for clearance of dues cannot per se be termedas unreasonable or arbitrary.

13. We may notice a slightly contra view in Haryana StateElectricity Board v. Hanuman Rice Mills, Dhanauri & Ors.,[7] in agiven scenario where the pendency of electricity dues was not mentionedin the terms & conditions of sale, and it was held in those facts that thedues could not be mulled on to the subsequent transferee.

14. We may notice that in Special Officer, Commerce, NorthEastern Electricity Supply Company of Orissa (NESCO) v.Raghunath Paper Mills Private Limited & Anr.,[8] a distinction wasmade between a connection sought to be obtained for the first time anda reconnection. In that case, no application had been made for transferof a service connection from the previous owner to the auction-purchaser,but in fact, a fresh connection was requested. In light of the regulationstherein, previous dues had to be cleared only in the case of areconnection. Hence, the respondents were held to be free fromelectricity liability. This Court in Southern Power Distribution Companyof Telangana Limited (through its CMD) & Ors.[9] found that the factswere similar to the NESCO[10] case, and thus followed the same line.

15. We have gone into the aforesaid judgments as it was urgedbefore us that there is some ambiguity on the aspect of liability of duesof the past owners who had obtained the connection. There have beensome differences in facts but, in our view, there is a clear judicial thinkingwhich emerges, which needs to be emphasized:

A. That electricity dues, where they are statutory in characterunder the Electricity Act and as per the terms & conditions ofsupply, cannot be waived in view of the provisions of the Actitself 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 contractualnature.

B. Where, as in cases of the E-auction notice in question, theexistence of electricity dues, whether quantified or not, has

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Abeen specifically mentioned as a liability of the purchaser andthe sale is on “AS IS WHERE IS, WHATEVER THERE ISAND WITHOUT RECOURSE BASIS”, there can be no doubtthat the liability to pay electricity dues exists on the respondent(purchaser).

BC. The debate over connection or reconnection would not exist incases like the present one where both aspects are covered asper clause 8.4 of the General Terms & Conditions of Supply.

16. In view of the aforesaid legal position, which has emerged,we are of the view that the impugned orders cannot be sustained andCare accordingly set aside while opining that appellant No.1 would bewell within its right to demand the arrears due of the last owner, fromthe respondent-purchaser.

17. The appeal is accordingly allowed, leaving the parties to beartheir own costs.

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Devika Gujral

Appeal allowed.

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