KSEB Cannot Demand Previous Owner's Power Dues From Auction Purchaser: Kerala High Court

The Kerala High Court on Tuesday held that the Kerala State Electricity Board (KSEB) cannot insist that an auction purchaser of the assets of a company in liquidation clear the previous consumer's electricity arrears as a condition for obtaining a fresh electricity connection.

A Division Bench of Justice A.K. Jayasankaran Nambiar and Justice Preeta A.K. ruled that the Electricity Act, 2003, the Kerala Electricity Supply Code, 2005; and the KSEB Terms and Conditions of Supply, 2005 do not permit recovery of an erstwhile consumer's dues from a subsequent purchaser seeking a fresh electricity connection.

The bench observed, "On the date of the application, the provisions of Section 43 of the Electricity Act, read with Regulation 12 of the Kerala Electricity Supply Code and Regulation 7 of the Kerala State Electricity Board Terms and Conditions of Supply, 2005 clearly envisaged that the dues of an erstwhile consumer could not be recovered from a subsequent consumer in the same premises."

The appeal arose from a single judge's decision upholding KSEB's demand that the appellant pay ₹36.70 lakh in electricity arrears left behind by the company in liquidation.

The appellant had purchased the company's land and other assets in an auction conducted by the Official Liquidator under orders of the company court. Although the sale was on an "as is where is and whatever there is" basis, the sale deed stated that the purchaser would hold the assets without any encumbrance or statutory liabilities of the vendor company.

After setting up a flour mill, the appellant applied for a fresh electricity connection. KSEB refused to grant it unless the appellant first paid the outstanding electricity dues of the previous consumer.

The appellant argued that KSEB had already pursued its claim in the liquidation proceedings and, having opted to participate in those proceedings, could not seek recovery of the same dues from the auction purchaser. It also contended that the Electricity Act, the Kerala Electricity Supply Code, 2005 and the KSEB Terms and Conditions of Supply, 2005 barred recovery of a previous consumer's dues from a subsequent owner of the premises.

The bench noted that the appellant had sought a fresh connection after the earlier connection had already been dismantled. It rejected KSEB's reliance on Regulation 19 of the KSEB Terms and Conditions of Supply, 2005, holding that the erstwhile consumer's agreement for service connection had been entered into before the 2005 regulations came into force. As a result, no enforceable charge existed over the assets.

The bench also found that KSEB had participated in the liquidation proceedings and lodged its claim before the Official Liquidator. It said the electricity board could not indirectly convert its position as an unsecured creditor into a preferential one by recovering the dues from the auction purchaser.

"That being the case, and when the assets were sold to the appellant herein in an auction sale directed by the Company Court, the KSEB could not have indirectly converted their claim as an unsecured creditor to a preferential claim for the said amount ignoring the preferential claims of other secured creditors seeking to recover their dues from the sale proceeds of the assets of the company in liquidation.", the court ruled.

The bench also relied on the sale deed, which stated that the purchaser took the assets "without any encumbrance and without any statutory liability of the vendor company."

It held that KSEB was therefore estopped from recovering the dues from the appellant.

Allowing the appeal, the bench set aside the single judge's judgment and held that KSEB must await its turn along with the other creditors in the liquidation proceedings to recover the outstanding dues.

For Appellant: Advocate C.K Karunakaran

For Respondents: Senior Advocate Raju Joseph, Advocates C Joseph Antony and John Manjooran