Case Note & Summary
The respondent, M/s. Srigdhaa Beverages, was the successful auction-purchaser of a mineral water bottling plant owned by M/s. SB Beverages Private Limited, which had defaulted on a loan. The property was auctioned by Syndicate Bank, a secured creditor, under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act). The E-auction sale notice dated 25.5.2017 contained several clauses, including Clause 24 stating that the property was sold on 'as is where is, what is there is and without any recourse basis' and subject to statutory dues, and Clause 26 absolving the Authorised Officer of liability for any charge, lien, encumbrance, property tax dues, electricity dues, etc. The reserve price was Rs.5,83,37,000 for the property, and the respondent's successful bid was Rs.9,18,65,000. The sale deed dated 29.9.2017 provided that the sale was 'made free from all encumbrances known to the Secured Creditor' and included an indemnity against defects in title, but not against other liabilities like electricity dues. When the respondent applied to the appellant, Telangana State Southern Power Distribution Company Limited, for a new 500 KVA electricity connection, the appellant refused, citing outstanding electricity dues of Rs.50,47,715 from the previous owner. The appellant relied on Clauses 5.9.6 and 8.4 of the General Terms and Conditions of Supply, which allowed refusal of a new connection if there were dues against the previous service connection. The respondent filed a writ petition in the High Court of Telangana and Andhra Pradesh, which quashed the demand, relying on Isha Marbles v. Bihar State Electricity Board and Southern Power Distribution Company of Telangana Limited v. Gopal Agarwal. The Division Bench dismissed the appeal. The Supreme Court allowed the appeal, holding that the auction notice specifically mentioned electricity dues and contained clauses that put the respondent on notice. The Court distinguished Isha Marbles on the ground that it lacked such specific clauses. The Court also relied on Hyderabad Vanaspathi Ltd. v. A.P. State Electricity Board to hold that electricity dues under the terms and conditions of supply are statutory in nature. The Court concluded that the respondent, having bid on an 'as is where is' basis with knowledge of the dues, was liable to pay the outstanding electricity dues before obtaining a new connection. The impugned judgment was set aside, and the appeal was allowed.
Headnote
A) Electricity Law - Liability for Previous Dues - Auction Purchase - The core issue was whether an auction-purchaser of a unit sold under the SARFAESI Act, 2002 is liable for the previous owner's outstanding electricity dues. The Supreme Court held that where the auction notice specifically mentions electricity dues and contains clauses absolving the secured creditor of such liabilities, the auction-purchaser is bound to pay those dues before obtaining a new electricity connection. The Court distinguished earlier judgments like Isha Marbles v. Bihar State Electricity Board, (1995) 2 SCC 648, on the ground that those cases lacked specific clauses dealing with electricity dues. (Paras 1-12) B) Electricity Law - Statutory Dues - Terms and Conditions of Supply - The Court reiterated that dues under the terms and conditions of supply partake the character of statutory dues, relying on Hyderabad Vanaspathi Ltd. v. A.P. State Electricity Board & Ors., (1998) 4 SCC 470. The mere fact that agreements are entered into with consumers does not make the dues purely contractual. (Para 9) C) Electricity Law - Auction Notice - 'As is where is' Sale - The auction notice in the present case explicitly stated that the property was sold on 'as is where is, whatever there is and without recourse basis' and subject to statutory dues. Clause 26 specifically absolved the Authorised Officer of liability for electricity dues. The Court held that a holistic reading of these clauses put the auction-purchaser on notice, and he was required to clear the outstanding electricity dues before seeking a new connection. (Paras 2-4, 10-12)
Issue of Consideration
Whether the liability towards previous electricity dues of the last owner could be fastened onto the auction-purchaser of a unit sold under the SARFAESI Act, 2002, when the auction notice contained specific clauses regarding statutory dues including electricity dues.
Final Decision
The Supreme Court allowed the appeal, set aside the impugned judgment of the High Court, and held that the respondent auction-purchaser is liable to pay the outstanding electricity dues of the previous owner before being granted a new electricity connection. The Court directed that the respondent must clear the dues as demanded by the appellant.
Law Points
- Auction purchaser is liable for previous electricity dues if auction notice specifically mentions such dues and absolves the secured creditor of liability
- Statutory dues under Electricity Act
- 2002 can be recovered from subsequent purchaser if terms of auction so provide
- 'As is where is' sale subject to statutory dues includes electricity dues
