Electricity Dues Of Previous Consumer Create First Charge On Property: Kerala High Court

The Kerala High Court on Friday observed that though the subsequent purchaser of a property is not liable to pay the dues owed to the Electricity Board by a previous owner; however, the dues from the previous consumer would create a first charge on the property in question.

Justice Shaji P. Chaly further clarified that the Electricity Board is entitled to recover the dues by proceeding against the property over which a charge is created, consequent to non-payment of the electricity dues by the previous consumer.

...even though the subsequent purchaser of a property is not liable to pay the dues of a previous owner, the dues from the previous consumer would create a first charge on the property in question; thereby meaning that the board is entitled to recover the dues proceeding against the property over which a charge is created consequent to non-payment of the electricity dues by the previous consumer.

The petition was moved by the Managing Director of a private limited company, who had purchased some assets of a company M/s A M A Food Products (P) Ltd, in liquidation. The assets purchased and handed over consisted of land, a factory building and machinery of the company in liquidation, which used to operate a flour mill. 

Upon making an application for power connection, the petitioner was informed that there were arrears of electricity charges of Rs. 36,70,200 from the previous owner, and the power connection cannot be given to the premises unless the arrears were cleared. The Writ Petition was filed against the demand raised by the Assistant Engineer KSEB towards electricity due from the previous owner.

The main contention raised by Counsel appearing for the petitioner, Advocate C.K Karunakaran, was that the intimation issued by the Electricity Board is illegal and infringes the fundamental right guaranteed under Article 19(1)(g) of the Constitution as the petitioner is unable to undertake his legitimate business.

The Counsel contended that Regulation 12 of the Supply Code 2005 and Regulation 7 of the Terms and Conditions of Supply stipulates that if the purchase of premises requires to have a new connection as the earlier connection has already been dismantled after disconnection, the arrears, if any, shall be realized from the previous owner/ occupier of the premises and not from the purchaser and therefore, according to the petitioner so long as this position exists in the statute, the respondents cannot demand the dues of the previous owner from the petitioner. 

It was also pointed out that the petitioner had purchased the property through a court action free from all encumbrances or dues, and therefore, no new encumbrance can be brought against the property purchased in an auction. 

On the contrary, Standing Counsel for KSEB, Advocate Josvin Thambi, submitted that by virtue of the provisions of the Electricity Act, 2003 and Kerala State Electricity Board Terms and Conditions of Supply, 2005 and the Kerala State Electricity Supply Code, 2005, a charge is created on the dues from the consumer on the property in question and therefore, the Board is entitled to realise the amount due from the previous owner charged on the property.

The Court, on a conjoint reading of Section 56 of the Electricity Act, 2003 and Regulation 19(4) of the Kerala State Electricity Board Terms & Conditions of Supply, 2005, observed that it is clear and evident that the first charge is created on the assets of a consumer by the statutory provision if there are dues to the Board from the consumer. 

The Court observed that it is important to note that the Kerala State Electricity Board Terms & Conditions of Supply, 2005 and the Kerala State Electricity Supply Code, 2005, are introduced by the Kerala State Electricity Regulatory Commission by virtue of the powers conferred under section 45(5) of the Electricity Act, 2003.

Therefore, from the provisions, the Court drew the inference that even though the subsequent purchaser of a property is not liable to pay the dues of a previous owner, the dues from the previous consumer would create a first charge on the property in question; thereby meaning that the board is entitled to recover the dues proceeding against the property over which a charge is created consequent to non-payment of the electricity dues by the previous consumer.

In the present facts at hand, it was pointed out that the order passed, and the report of the official liquidator makes it clear that the Kerala State Electricity Board was not a party to the proceedings. Furthermore, as per the terms and conditions of the sale approved by the High Court of Kerala, the sale is on "as is where is and whatever there is" condition. 

The Court observed that this made it clear that whatever the property's condition as of the date of sale and the execution of the document would continue with the property. Therefore, it means when a charge was created by virtue of the provisions of the statute, the charge runs with the property in question, observed the Court. 

The Court relying on the Apex Court decision in Telangana State Southern Power Distribution Company Limited and Another v. SRIGDHAA Beverages, observed that that the dues of a previous consumer so far as the Terms & Conditions of Supply, 2005 is concerned, is not merely a contractual due but a statutory due creating the first charge over the property; and the amount so made consequent to the failure on the part of the previous consumer to pay the electricity dues runs with the property.

However, noting that the Kerala State Electricity Board was not a party to the winding up proceedings and the sale deed executed in favour of the petitioner indicates that the property was sold with "as in whereas and whatever there is" condition, the Court observed that it can only be legally presumed that the petitioner had made due enquiries as to the condition of the property and it should have been aware of the electricity charges due from the previous consumer.

Thereby, the Court refused to quash the proceedings, especially because it was only a mere intimation about the amount due from the previous consumer or to secure any other consequential relief sought. 

The Court dismissed the Writ Petition, thereby leaving the petitioner at liberty to pay the dues owed within two months to avert any coercive and recovery action against the property, failing of which the Board is at liberty to proceed by the law to recover the amount due, by the charge created on the property. 

Case Title: G. Nagendran v. Kerala State Electricity Board & Anr. 

Citation: 2022 LiveLaw (Ker) 527

Click Here To Read/Download The Order