S. 56 Electricity Act 2003 | 2 Year Limitation Period Not Applicable To Dues Incurred Before Enforcement Of 2003 Act : Supreme Court

The Supreme Court held that the liability arising out of the electricity bill dues which accrued before the enforcement of the Electricity Act, 2003 (“2003 Act”) would not be barred by the 2-year old limitation period prescribed under Section 56 of the 2003 Act.

The Court held that once a liability is judicially crystallised and remains unchallenged, the person is bound by the principle of estoppel.

A bench of Justices Dipankar Datta and Pankaj Mithal heard a challenge related to the electricity consumption in which Respondent no. 1 had challenged the due raised by the Appellants but the same was held against him by the Madhya Pradesh High Court and then in a miscellaneous petition. However, ignoring the order, the petition was withdrawn and a second round of litigation was invoked on the same issue which ended in his favour as the division bench of the High Court applied the law of limitation.

Background

As per the brief facts, Respondent No.1 had entered into an agreement in November 1991 with the Madhya Pradesh electricity distribution utility (Appellants) for the supply of electricity energy against guaranteeing a minimum consumption that would yield an annual revenue of Rs. 34,747.

Subsequently, supplementary agreements were executed by both parties to increase the consumption of electrical energy. In July 1996, an additional increase of 560 kVA was done making it a total of 1170 kVA.

Undisputedly, Respondent No. 1 sought permission from the Appellants to install and run an 807 kVA biogas turbo-generating set for captive use. The permission was granted on the grounds that the TG set should not run parallel to the Appellants' supply system and the TG set should be used only as a stand-by measure upon failure of the Appellants to supply power.

Moreover, Respondent No. 1 was bound to pay minimum consumption of units, with 35% load factor in case of no power cut, and 39% load factor in cases of power cut.

In 2000, the Appellants sent a notice to Respondent No. 1 for the cancellation of permission to run the TG set, alleging that the latter was running the TG set as a parallel source. This cancellation notice was challenged before the Madhya Pradesh High Court which on May 4, 2000, through an interim order stayed the operation but directed Respondent No. to deposit 'minimum guarantee charges' as against the 807kVA load.

Thereafter, the Appellants sent the first show cause notice for amount of Rs. 70,50,000 to be paid within 15 days of the notice. Respondent no.1 challenged the notice in a miscellaneous petition filed in the first writ petition however he was not successful. On February 14, 2001, the High Court held that Respondent No. 1 is liable to pay the minimum guarantee charges irrespective of whether electricity is consumed or not. Eventually, Respondent No. 1 withdrew the first writ petition.

In 2009, again a second show-cause notice was issued for period June 1996 and May 2000. Thereafter, demand was raised via an energy bill wherein the pre-existing liability of Rs. 70,50,478 was mentioned as “Other Chars. (sic, charges)”. Simultaneously, a demand-cum-disconnection notice was issued that in the event of non-payment, the supply would be disconnected.

The second show cause was challenged in another round of litigation before the High Court. On April 6, 2009, the single judge ordered interim stayed on the second notice but on condition that Respondent no. 1 would furnish a bank guarantee for the amount equivalent, which was duly furnished.

Eventually, the High Court on July 16 partly allowed the appeal and the High Court held that Respondent No. 1 is obligated to consume the monthly minimum units on the load factor since it agreed to it. But, the retrospective application of the enhanced contract was struck down and the Appellants were directed to recalculate it, with the enhanced demand (1170 kVA) being applicable from October 14, 1996 onwards. The revised demand came out to be Rs.56,81,977.58, which was recovered through the bank guarantee. However, the encashment was challenged by the Respondent no. 1 in a contempt petition.

The High Court's order was also challenged before the division bench.

What did the High Court say?

On October 13, 2011, the division bench allowed an appeal and quashed the second show cause notice under Section 56(2) of the Electricity Act, 2003. On whether Respondent no. 1 was liable to pay minimum guaranteed consumption, the High Court held that the Appellants were within their right to demand minimum guarantee charges but there also existed a corresponding duty upon such appellant to supply electrical energy to such an extent, fulfilment of which duty had not been.

Second, the High Court applied limitation and determined whether the liability which accrued when the Electricity (Supply) Act, 1948 was applicable, when the first show cause was issued, could be enforced after the 2003 Act came into effect when the second show cause was issued.

Section 56(2) of the 2003 Act provided a limitation period of 2 years for recovery of dues, which was not there in the 1948 Act. It held that since the first writ petition was disposed of in 2006, the limitation period within which the show cause notice could have been valid is June 9, 2008.

Therefore, the July 16, 2009 order was reversed.

What did the Supreme Court observe?

The only limited issue the Court determined was whether Section 56(2) has any application for the recovery of the sum payable under the Indian Electricity Act, 1910. The Court observed that the division bench order has to be set aside as contrary to subsequent decisions in Kusumam Hotels (P) ltd. v. Kerala SEB (2008) and K.C. Ninan v. Kerala SEB (2023), both of which have held that the liability which incurred prior to the 2003 Act will have no application of Section 56(2). That is, for the liability incurred prior to the 2003 Act, the bar of limitation under Section 56(2) has no application.

The Court held: "As settled by this Court, section 185(5) of the 2003 Act read with section 6 of the 1897 Act would lead to the inescapable conclusion that the limitation period of two (2) years prescribed for recovery of dues under section 56 of the 2003 Act would apply to liabilities arising under the 2003 Act, and not prior to the enforcement thereof. Thus, we hold that the Division Bench manifestly erred in holding that the liability incurred by the first respondent prior to the enforcement of the 2003 Act would still be barred by the provisions of section 56(2) thereof."

On the issue of dues, the Court found that Respondent no.1 did not obey the orders issued in the first writ petition, the miscellaneous application despite it being unchallenged. Considering this, the principle of estoppel barred Respondent no. 1 from challenging the second show cause notice with the position via the first show cause notice was crystallized.

The Court observed: "It was, therefore, incumbent upon the first respondent to challenge the order dated 14th February, 2001; and having failed to do so, it would not be of any merit for the first respondent to contend that until the disconnection notice had been issued on 18th March, 2009, the liability had not crystallised so as to render the first respondent liable to pay the same. The challenge to the first show cause notice having failed, as noticed above, the principle of issue estoppel operated as a bar for the first respondent to raise a challenge to the second show cause notice, which had been issued for precisely the same due amount of Rs 70,50,478/- (Rupees seventy lakhs fifty thousand four hundred and seventy eight only)."

Although the Court stated that the estoppel restricted Respondent no. 1 from challenging the second show cause and the case may have been decided against Respondent no. 1 without assigning reasons or even wrongly, nothing can be done about it now.

It averred: "As has been held in Hope Plantations (supra) and Bhanu Kumar Jain (supra), a point even if wrongly decided binds the party against whom it is decided and the same point cannot be urged in a subsequent suit or proceeding at the same level.

The crux of the matter is that the issue of liability accruing to the first respondent for non-payment of minimum guarantee charges had been decided previously and such decision, not being subjected to any appeal, had attained finality in the eyes of law estopping the first respondent from reagitating the issue. In our considered opinion, the second writ petition at the instance of the first respondent was not maintainable and, accordingly, ought not to have been entertained at all."

The Court however did not make any change in the position since the fresh demand of a reduced amount was already encashed.

Case Details: THE MADHYA PRADESH MADHYA KSHETRA VIDYUT VITRAN COMPANY LIMITED & ORS.v. BAPUNA ALCOBREW PRIVATE LIMITED & ANR., Civil Appeal No. 1095 of 2013

Citation : 2024 LiveLaw (SC) 862

Appearances: Senior Advocate Liz Mathew for Appellants & Senior Advocate Jayant Mehta for Respondent No.1

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