K. C. NINAN v. KERALA STATE ELECTRICITY BOARD & Ors.

From the Judgment and Order dated 13.02.2003 of the High Court of Kerala at Ernakulam in O.P. No.10441 of 1991 and dated 03.09.2003 in R.P. No. 307 of 2003. With Civil Appeal Nos. 2108 of 2004, 5312-5313, 5314, 6587, 7303 of 2005, 6579, 6593-6594 of 2022, 3018 of 2007, 7169, 6591, 6595, 6879- 6881, 6592, 7103-7104, 6828, 7064, 6590 and 3640 of 2022. D E F G H K. C. NINAN v. KERALA STATE ELECTRICITY BOARD & ORS. 651 Ranjit Kumar, Vijay Hansaria, M.G. Ramachandran, Ajit S Bhasme, V. Giri, Shekhar Naphade, Rana Mukherjee, Bharat Patel, P.S. Patwalia, Ravindra Kumar, Sr. Advs., Mahesh Agarwal, Ankur Saigal, Ms. Sayaree Basu Mallick, Abhinabh Garg, Shashwat Singh, E.C. Agrawala, Pradeep Misra, Daleep Dhyani, Manoj Kumar Sharma, Kshitij Mittal, Ms. Madhumita Bhattacharjee, Ms. Srija Choudhury, Ms. Kavya Jhawar, Ms. Srishti Khindaria, Bhargava V. Desai, Ms. Charu Modi, Deepanshu, Sanjay Kumar Visen, Mukesh Kumar Pandey, Suresh Kumar Bhan, Sandeep Joshi, Ms.

Ritu Rastogi, Ms. Mohini Kumari, Aman, E. M. S. Anam, Puneet Jain, Christi Jain, Yogit Kamat, Mann Arora, Umang Mehta, Ms. Shruti Singh, Ms. Pratibha Jain, Romy Chacko, Sudesh Kumar Singh, Nikhil Jain, Susheel Tomar, Puneet Singh Bindra, Satya Prakash, Vinod Kumar Jain, Prashant Mohla, Ms. Simran Jeet, Yasharth Kant, Ms. Zinnea Mehta, Shrirang B. Varma, Sagar Juneja, Harshit Sethi, Neeraj Kumar Verma, Ms. Kavya Jhawar, Ms. Sneha Kalita, Ms. Hemantika Wahi, Ms. Jesal Wahi, Anand Ganesan, Ms. Aneesh Bajaj, Amar Dave, Ms. Nandini Gore, Ms. Neha Khandelwal, Ms. Ramya Khanna, Ms. Farah Hashmi, Dr. Prashant Pratap, Kumar Mitakshar, Yashwant Gaggar, Mrs. Manik Karanjawala, R.B. Phookan, Ms. Neha Tandon, Shailesh Madiyal, Chirag M. Shroff, Ms. Ruby Singh Ahuja, Raj Singh Rana, Vijay K Verma, Ms. Akshita Mohnot, Rajat Srivastav, Praveen Chaturvedi, M.Y. Deshmukh, Ms. Manjeet Kirpal, Ms. Adveetiya Sharma, Rameshwar Prasad Goyal, Ashok Mathur, Purvish Jitendra Malkan, Alok Kumar, Mrs.

Dharita Purvish Malkan, Ms. Nandini Chhabra, Vismay Malkan, Ms. Dhruva Kumar, Chandan Kumar Mandal, Shakti Chand Jaidwal, D.N. Ray, Dillip Kumar Nayak, Ms. Disha Ray, Mrs. Sumita Ray, P. V. Dinesh, Raghenth Basant, Rahul Raj Mishra, Bineesh K., Ashwini Kumar Singh, Sudhir, Parinay Deep Shah, Ms. Sharmila Upadhyay, Shivaji M. Jadhav, Brij Kishor Sah, Ms. Shivani Rautela, Ms. Apurva, Adarsh Kumar Pandey, M/s. Ap & J Chambers, Jatin Zaveri, T. Srinivasa Murthy, P. N. Gupta, Mrs. Bharti Gupta, Ram Lal Roy, Ms. Anukriti Sugam, Abhijeet Sinha, P. V. Yogeswaran, Ms. Bansuri Swaraj, Sidhesh Kotwal, Ms. Ana Upadhyay, Ms. Manya Hasija, Nihar Dharmadhikari, Akash Singh, Ms. Harshika Verma, Nirnimesh Dube, Ms. Divya Roy, P. S. Sudheer, Ms. Anne Mathew, Bharat Sood, Ms. Shruti Jose, Siddharth Dharmadhikari, Aaditya A. Pande, Bharat Bagla, Ms. Deepanwita Priyanka, Advs. for the appearing parties. A B C D E F G H 652 SUPREME COURT REPORTS [2023] 9 S.C.R. A B C D E F G H The Judgment of the Court was delivered by DR DHANANJAYA Y CHANDRACHUD, CJI Table of Contents* A. Overview .......................................................................... 4 B. Regulatory Regime ........................................................... 5 C. The position in law ......................................................... 10 D. Issues .............................................................................. 14 E. Submissions .................................................................... 15 F. Analysis .......................................................................... 25 G. Application: Facts of Individual Cases ........................... 89 I. Kerala ............................................................................. 90 II. Maharashtra ................................................................... 99 III. Gujarat .......................................................................... 132 IV. Assam........................................................................... 166 V. West Bengal ................................................................. 170 H. Equity and Fairness ...................................................... 175 I. Conclusions ................................................................... 177 A. Overview

The nineteen cases in this batch of appeals follow a similar pattern of facts. The supply of electricity was discontinued due to the failure of the previous owners to pay the dues for consumption of electricity on the premises. The previous owners had borrowed money or raised loans on the security of their premises. In some cases, the erstwhile owner went into liquidation. The premises were sold in auction sales generally on an “as is where is” basis. The new owners, who purchased the properties in auction, applied for new electricity connections for the premises to which electricity had been disconnected for failure to pay the dues. The Electric Utilities refused to provide an electricity connection unless the auction purchaser paid the dues of the previous owner. This refusal was derived from powers conferred under subordinate legislations, notifications, electricity Supply Codes or state regulations. *Ed. Note : Pagination in the Table is as per the original Judgment. K. C. NINAN v. KERALA STATE ELECTRICITY BOARD & ORS. [DR DHANANJAYA Y CHANDRACHUD, CJI] 653 The denial of electricity supply resulted in the institution of petitions under Article 226 before the High Court, leading to the judgments which are in appeal.

In Maharashtra State Electricity Board v. Super & Stainless Hi Alloy Ltd1, this Court by an order dated 24 August 2006 referred the Civil Appeals to a Bench of three Judges for dealing with the issue of the recovery of arrears of electricity. The order of reference referred the question of whether electricity dues constitute a charge on the property so far as the transferor and the transferee of the unit are concerned.

The matters involving similar nature of dispute were tagged along with the above reference by an order dated 1 November 2007. The issue which is raised in these appeals is whether the arrears of unpaid electricity dues outstanding from the erstwhile owner can be claimed from the subsequent owner, who has acquired the property in proceedings initiated to enforce mortgages or to pay off the dues of creditors. B. Regulatory Regime

Electricity is a concurrent subject under the Constitution of India. Prior to the enactment of the Electricity Act 20032, the Electricity Act 19103 governed the supply and use of electrical energy in India. The 1910 Act prescribed the legal framework for laying down cables and other works related to the supply of electricity. It also laid down a legal framework for supply of electrical energy and imposed certain responsibilities and obligations on persons licensed to supply electricity with a view to incentivise the growth of the electricity industry through private licensees.

Section 2(c) of the 1910 Act defined “consumer” as any person supplied with energy by a licensee or any other person engaged in the business of supplying energy to the public under the Act, and included any person whose premises were for the time being connected for the purposes of receiving energy. Section 21(2) empowered a licensee to make conditions to regulate their relations with persons who were or intend to become consumers. Section 22 obligated a licensee to supply 1 Civil Appeal Nos 5312-5313 of 2005 2 “2003 Act” 3 “1910 Act” A B C D E F G H 654 SUPREME COURT REPORTS [2023] 9 S.C.R. A B C D E F G electrical energy, on application, to every person within the area of supply on the same terms as those on which any other person in the same area was entitled. Section 24 empowered the licensee to disconnect the supply of electricity if any person neglected to pay any charge or sum for energy due to the licensee.

The 1910 Act was found inadequate for a coordinated development of electricity and a “grid-system” in India. Therefore, the Electricity (Supply) Act 19484 was enacted for the rationalisation of the production and supply of electricity and for taking measures conducive to the development of electricity. The 1948 Act mandated the state governments to constitute State Electricity Boards under Section 5 and entrusted them with the responsibility of administering the grid-system and arranging the supply of electricity in the state. Section 26 provided that, subject to the provisions of the Act, the Board shall have all the powers and the obligations of a licensee under the 1910 Act. Section 49 empowered the Boards to supply electricity to any person, not being a licensee, on such terms and conditions as laid down by the Board. In terms of Section 70(2), the provisions of the 1948 Act were in addition to, and not in derogation of the 1910 Act.

Parliament enacted the Electricity Regulatory Commissions Act 19985 with an aim to distance the government from determination of tariffs. The 1998 Act created the Central Electricity Regulatory Commission and enabled the state governments to create State Electricity Regulatory Commissions.

Parliament consolidated and harmonised the provisions of the 1910 Act, 1948 Act, and 1998 Act by enacting the 2003 Act. In the process, the 2003 Act repealed the aforesaid three legislations. The long title of the 2003 Act reads as follows: “An Act to consolidate the laws relating to generation, transmission, distribution, trading and use of electricity and generally for taking measures conducive to development of electricity industry, promoting competition therein, protecting interests of consumers and supply of electricity to all areas, rationalisation of electricity tariff, ensuring transparent policies regarding subsidies, promotion of efficient and environmentally benign policies, constitution of Central Electricity Authority, Regulatory Commissions and 4 “1948 Act” 5 “1998 Act” H K. C. NINAN v. KERALA STATE ELECTRICITY BOARD & ORS. [DR DHANANJAYA Y CHANDRACHUD, CJI] 655 establishment of Appellate Tribunal and for matters connected therewith or incidental thereto.” A

The 2003 Act has been enacted in pursuance of the policy of encouraging private sector participation in the generation, transmission, and distribution of electricity. Other objectives of the 2003 Act include vesting the regulatory responsibilities from government to the regulatory commissions, delicensing of electricity generation, promotion of captive generation, and encouraging open access transmission. Section 2(15) of the 2003 Act defines ‘consumer ‘in terms similar to Section 2(c) of the 1910 Act. Part VI of the 2003 Act deals with distribution of electricity. Section 43 casts a Universal Service Obligation6 on the distribution licensee to provide supply of electricity to the premises of an owner or occupier. The State Commission has been empowered under Section 50 to specify an Electricity Supply Code to provide among other things for the recovery of electricity charges, intervals for billing of electricity charges and disconnection of supply of electricity for non-payment. Under Section 56, the generating company or distribution licensee, as the case may be, may disconnect electricity supply of any person who neglects to pay any charge or sum for electricity. Section 181(2)(x) provides that the State Commission may make regulations inter alia providing for, the Electricity Supply Code under Section 50.

In light of the provisions contained in the 1910 Act, 1948 Act, and 2003 Act, various Electric Utilities such as State Electricity Regulatory Commissions, State Electricity Boards, and distribution licensees notified Conditions of Supply requiring the new owner of premises to clear the outstanding dues of the previous owner. The nineteen cases in the batch of appeals originate from the States of Kerala, Maharashtra, Gujarat, Assam, and West Bengal.

In Kerala, the Kerala State Electricity Board7 notified the Conditions of Supply of Electrical Energy in 1990. Condition 15(e) of the Conditions of Supply provides that reconnection or a new connection shall not be given to any premises unless the arrears due to the Board are cleared.

In Maharashtra, the Maharashtra State Electricity Board8 framed MSEB Conditions and Miscellaneous Charges for Supply of 6 “USO” 7 “KSEB” 8 “MSEB” B C D E F G H 656 SUPREME COURT REPORTS [2023] 9 S.C.R. A B C D E F G H Electrical Energy, 19769 in exercise of power under the 1948 Act. Clause 23(b) of the MSEB Conditions of Supply allowed the Board to refuse to supply or give a new electricity connection to any person claiming to be an heir, legal representative, transferee, assignee or successor of the defaulting consumer. After the enactment of the 2003 Act, the Maharashtra Electricity Regulatory Commission (Electricity Supply Code and other Conditions of Supply) Regulations 200510 were framed. Regulation 10.5provides that unpaid electricity dues constitute a charge on the property and can be recovered from the transferee (subject to a maximum of six months of unpaid charges for electricity supplied).

In Gujarat, the Gujarat Electricity Board inserted Condition 2(j) in the Conditions and Miscellaneous Charges for Supply of Electrical Energy in 2001.11 This condition empowered the Board to insist that the new occupier of the premises clear the pending electricity dues of the previous consumer as a precondition to reconnection or release of a fresh connection. In 2005, the Gujarat Electricity Regulatory Board notified the Gujarat Electricity Regulatory Commission (Electricity Supply Code and Related Matters) Regulations, 200512. Clause 4.1.11 of Gujarat Electricity Supply Code, 2005 provided that only the dues of the applicant, if any, were required to be paid at the time of the application for a new connection. The said Clause was later amended in 2010 to provide that the distribution licensee need not entertain an application for reconnection or a new connection unless any dues relating to those premises are cleared.

In Assam, the Assam Electricity Regulatory Commission13 framed the Assam Electricity Regulatory Commission (Electricity Supply Code and Related Matters) Regulations, 2004.14 Clause 3.6 dealing with the requisition of electricity supply requires a person occupying a new premises to ensure that all the outstanding electricity dues are duly paid up and discharged.

In West Bengal, the West Bengal Electricity Regulatory Commission (Electricity Supply Code) Regulations, 201215 have been 9 “MSEB Conditions of Supply” 10 “Maharashtra Electricity Supply Code 2005’’ 11 “Gujarat Conditions of Supply” 12 “Gujarat Electricity Supply Code” 13 “AERC” 14 “AERC Supply Code” 15 “WB Electricity Supply Code” K. C. NINAN v. KERALA STATE ELECTRICITY BOARD & ORS. [DR DHANANJAYA Y CHANDRACHUD, CJI] 657 notified under the 2003 Act. Clause 3.4.2 of the said regulations empowers the licensee to recover the dues of a previous consumer in respect of the premises from a new consumer only if there is a nexus between the previous consumer and the new consumer.

The subsequent owners or occupiers of the premises challenged the Conditions of Supply and Electricity Supply Codes enacted by the Electric Utilities before the respective High Courts when they were called upon to clear the arrears of the previous owners or dues relating to the premises. C. The position in law

Prior to the enactment of the 2003 Act, in Isha Marbles v. Bihar State Electricity Board,16 a three-judge Bench of this Court held that in the absence of a charge being created over the premises by a statutory regulation, an auction purchaser cannot be asked to clear the past arrears of electricity dues as a condition precedent to the grant of electricity. This Court elucidated the position in the context of Section 24 of the 1910 Act to emphasise that the contract for supply was only between the Electricity Board and the previous consumer, and the subsequent purchaser was neither a consumer within the meaning of the 1910 Act nor had any contractual relationship with the Electricity Board. This Court noted that though electricity is public property which the law must protect, yet the law, as it stood at that time, was inadequate to enforce the liability of unpaid electricity charges of a previous consumer against a subsequent purchaser of the premises. In Isha Marbles (supra), this Court did not have to deal with any statutory rule, regulation or conditions of supply dealing with the imposition of liability for the payment of electricity dues on a subsequent purchaser.

Thereafter, another Bench of three judges in Ahmedabad Electricity Co. Ltd. v. Gujarat Inns (P) Ltd,17 held that in a case of a fresh connection, though the premises are the same, the auction purchasers cannot be held liable to clear the arrears incurred by the previous owners in respect of power supplied to the premises in the absence of a specific statutory provision in that regard. However, this Court opined that there was a need for reconsideration of the “wide propositions of law” laid down in Isha Marbles (supra). 16 1995 SCC (2) 648 17 (2004) 3 SCC 587 A B C D E F G H 658 SUPREME COURT REPORTS [2023] 9 S.C.R. A B C D E F G H

In Hyderabad Vanaspathi Ltd v. Andhra Pradesh State Electricity Board,18 a three-judge Bench of this Court observed that the terms and conditions of supply notified by the Electricity Boards are statutory in character as they have been framed in exercise of statutory power under Section 49 of the 1948 Act. The mere fact that individual agreements were entered into with every consumer did not make the agreement contractual in nature.

In a series of subsequent decisions of this Court, various two- judge Bench decisions have taken note of specific statutory regulations enabling recovery of dues from subsequent purchasers. In the process, this Court distinguished Isha Marbles (supra), where the Court had no occasion to consider similar provisions. In Dakshin Haryana Bijli Vitran Nigam Ltd v. M/s Paramount Polymers Pvt Ltd,19 this Court was dealing with Clause 21A of the relevant Conditions of Supply, which entitled a licensee to demand payment of outstanding dues from a transferee if they desired a service connection. It was held that Isha Marbles (supra) cannot be applied to strike down Clause 21A as the Court in that case had no occasion to consider the effect of a similar clause. The matter was remitted back to the High Court for a fresh decision since it had not adjudicated on the implication of Clause 21A of the Conditions of Supply.

In Paschimanchal Vidyut Vitran Nigam Limited v. DVS Steels and Alloys Private Limited,20 this Court observed that a licensee or an electricity distributor can insist upon fulfilment of statutory rules, regulations or the conditions of supply so long as they are not arbitrary and unreasonable. It was further held that the conditions of supply mandating the clearance of electricity dues of a previous owner by a new purchaser before electricity supply is restored or a new connection is given to the premises cannot be termed as unreasonable or arbitrary.

The position of law as formulated in Paramount Polymers (supra) and Paschimanchal Vidyut Vitaran Nigam Limited (supra) has been consistently followed by this Court in ensuing decisions. Recently, in Telangana State Southern Power Distribution Co. Ltd. v.