"I realise that some of my criticisms may be mistaken; but to refuse to criticize judgements for fear of being mistaken is to abandon criticism altogether... If any of my criticisms are found to be correct, the cause is served; and if any are found to be incorrect the very process of finding out my mistakes must lead to the discovery of the right reasons, or better reasons than I have been able to give, and the cause is served just as well." -Mr. HM Seervai, Preface to the 1st ed., Constitutional Law of India.

Tuesday, December 7, 2010

Liability of the Purchaser for the Electricity Dues of the Previous Owner

Haryana State Electricity Board v. Hanuman Rice Mills & Ors.
Civil Appeal No. 6817 of 2010
20 August 2010
RV Raveendran & HL Gokhale, JJ.
This case involved an interesting issue. Haryana Financial Corporation (HFC) could not repay the money it had taken as loan from Durga Rice Mills (Durga). So HFC auctioned its rice mills to repay the dues. Hanuman Rice Mills (Hanuman) purchased it for a particular sum. At the time of purchase, the electricity connection was disconnected. So Hanuman obtained its own electricity connection in 1991. In 1995, Hanuman received a notice for payment of Rs. 2,39,251 towards arrears of electricity charges due by Durga. Against the said notice from the Haryana State Electricity Board (HSEB), Hanuman filed a suit for permanent injunction. Hanuman failed in the trial court and the first appellate court but succeeded in the High Court. So HSEB appealed against the HC decision. The fundamental issue was whether Hanuman was liable for clearing the dues of Durga. The Supreme Court, citing the previous cases (especially the case of Isha Marbles v. Bihar SEB), summarized the principles laid down in this connection:
“(i) Electricity arrears do not constitute a charge over the property. Therefore in general law, a transferee of a premises cannot be made liable for the dues of the previous owner/occupier.
(ii) Where the statutory rules or terms and conditions of supply which are statutory in character, authorize the supplier of electricity, to demand from the purchaser of a property claiming re-connection or fresh connection of electricity, the arrears due by the previous owner/occupier in regard to supply of electricity to such premises, the supplier can recover the arrears from a purchaser.”
In this case, since there were no statutory rules or terms authorizing the supplier of electricity to demand arrears of electricity charges due by the previous owner from the purchaser of a property who has been given a fresh connection. The court also took note of the case of Dakshin Haryana Bijli Vitran Nigam Ltd. v Paramount Polymers Pvt. Ltd., where the Supreme Court held that the subsequent purchaser was liable for the arrears of electricity charges due by the previous owner in view of the clear stipulation in the terms and conditions of supply. In Paramount Polymers, the said stipulation read:
"21-A (a) When there is transfer of ownership or right of occupancy of a premises, the registered consumer shall intimate the transfer of right of occupancy of the premises within 15 days to the Assistant Engineer/Assistant Executive Engineer concerned. Intimation having been received, the service shall be disconnected unless application for transfer is allowed. If the transferee desires to enjoy the service connection, he shall pay the outstanding dues, if any, to the Nigam and apply for transfer of the service connection within 30 days and execute fresh agreement and furnish fresh security. New Consumer number shall be allotted in such cases canceling the previous number.
(b) Reconnection or new connection shall not be given to any premises where there are arrears on any account due to the Nigam unless these are cleared in advance. If the new owner/occupier/allottee remits the amount due from the previous consumer, the Nigam shall provide reconnection or new connection depending upon whether the service remains disconnected/ dismantled as the case may be. The amount so remitted will be adjusted against the dues from the previous consumer. If the Nigam get the full or partial dues from the previous consumer through legal proceedings or otherwise, the amount remitted by the new owner/occupier to whom the connection has been effected shall be refunded to that extent. But the amount already remitted by him/her shall not bear any interest.
(c) The above proposed provisions of clause 21-A(a) & (b) shall be applicable to existing consumers also where defaulting amount exists against premises occupied by such consumer."
Note that 21-A(a) covered cases where the purchaser sought transfer of the connection of the previous owner and 21-A(b) covered cases where the purchaser sought a new connection. In both the cases, the obligation rested on the purchaser to clear the dues. Since the above term was notified only in 2002, it was not applicable to Hanuman.

The “moral of the story” is that purchasers of property ought to be careful when they buy property. It is better to include a clear indemnity clause in the transaction documents protecting the purchaser from such liability. As a preventive measure, enquiries may be made in the State Electricity Board if such dues are pending.

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