This article is written by Lakshyajit Singh Bagdwal, a student of UPES, Dehradun.

Nicola Tesla once said “Invention is the most important product of man’s creative brain. The ultimate purpose is the complete mastery of mind over the material world, the harnessing of human nature to human needs.” One of the Inventions of man was Electricity which in today’s world is one of the most important source of power. Be it any form of economy or business i.e Primary, Secondary or Tertiary, everyone require electricity.

Because of the importance of this source, in today’s scenario we see a lot of disputes regarding electricity. One of the issues that have come up by analysing and referring to various cases is whether a new owner of a building is required to pay the pending bills of the old owner. When purchasing a property, no one generally bothers to find out about the status of the dues pertaining to electricity, water and property taxes etc.  When such a deed is made for transfer of property, the new owner becomes the transferee and the old owner is the transferor and as per the general rule of law, a transferee is not liable for the dues of the Transferor. A particular clause has to be made in order to assure the payment of all the dues and liabilities attached to the transferor before the sale of the property was made.  This could only be done by making a sale agreement after the sale deed is made. It is always advisable to have an agreement to sell in writing. It precedes the execution of a sale deed. This agreement is signed and executed by the seller and buyer on a non-judicial stamp paper. This proves as relevant evidence in the court of law in case of any dispute arising in the future. The Sale Agreement would act as a security to both the Buyer and the Seller of the property. Non-compliance of the sale agreement would lead to the Breach of Contract and will lead either of the parties to pay compensation for the damages caused to the other party to the Agreement. Generally the Sale Agreement contains a term clause saying “free from all types of encumbrances” which means that the new owner shall not be liable and is free from all the dues that are to be paid by the old owner. Thus, it would be advisable to have such term in the sale certificate of the premises as it would then restrict the Electricity Regulatory commission from not accepting the application for new connection of Electricity or from disconnecting the supply of electricity.

Another aspect that has to be kept in mind is that Electricity which has become a commodity now comes under the State list. Every State has its own State Electricity Regulatory Commission which looks after the terms and policies of the State’s Electricity affairs. These State Regulatory Commission are not only established for the administration and regulation of Electricity and Power industry in order to set tariff but are also there to protect the interest of the buyer and the seller of the electricity. Every State Regulatory Commission has to set its norms and policies in accordance with the guidelines set by the Central Electricity Regulatory Commission of India. This issue has been taken into consideration by few of the State Electricity Regulatory Commission. The case of Seema B .Kumar v. Assistant Executive Engineer, Kerala State Regulatory Commission and others,[1] disputed with a similar issue where the Petitioner’s bid for the purchase of the industrial premises of the seller was confirmed. Later when the Petitioner applied for the connection of Electricity to the Kerala State Electricity Board, her application was rejected on the grounds that the previous owner failed to pay the Electricity Bills and the application could not be accepted until the previous dues are paid.  The matter later when to the Kerala High Court where the court dismissed the appeal on the ground of clause 15(e) of the regulations relating to Condition of Supply of Electricity Energy. Clause 15(e) stated “reconnection or new connection shall not be given to any premises where there are arrears on any account due to the Board pending payment, unless the arrears including penalty, if any, are cleared in advance. If the new owner, occupier or allottee remits the amount due from the previous consumer, the Board shall provide recommendation or a new connection depending on whether the service remains disconnected/dismantled, as the case may be.”

Thus it could be clearly seen and determined that the rules and regulation of State Electricity Regulatory Commission have to be complied with and should be adhered to.

The Apex Court of India i.e. The Supreme Court has also came up with a Judgement regarding this issue[2]. In this case the Transferee purchased the premises of transferor for Rs15, 25,000. The Haryana State Regulatory Commission granted a fresh electricity supply to the new owner of the premises but later issued a notice demanding Rs2, 39,251 towards arrears of electricity charges due by the previous owner. The supply was cut as the new owner did not pay the dues. The matter went to Haryana and Punjab High Court. The court held that the liability of the previous owner cannot be imposed on the subsequent owner. After the judgement was announced, the State Electricity Board took the matter to the Supreme Court. The Apex Court dismissed the appeal saying that the Board could not seek enforcement from the present owner for the liabilities of the previous owner since the present owner was the third party vis-à-vis the contract between the State Electricity Board and the previous occupant. The bench then laid certain guidelines for determining such disputes.

“The position therefore can be summarized as :-

• Electricity arrears do not constitute a charge over the property. Therefore in general law, a transferee of premises cannot be made liable for the dues of the previous owner/occupier.
• 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.“

From the above guidelines of the Supreme Court we can clearly understand that as per the general rule of law, the transferee is not liable for the dues of the previous/old owner until and unless there is a statute that governs the interest of the parties. If there is a statutory provision which imposes the liability of the previous owner on the subsequent owner as we saw in the above case of Seema B .Kumar v. Assistant Executive Engineer, Kerala State Regulatory Commission and others, the new owner of the premises will be held liable for the payment of Electricity bills that are pending of the previous owner.

Similarly the Bihar Electricity Regulatory Commission has also declared that new Electricity connection would not be denied to the subsequent owners if the previous owner failed to pay the electricity dues. This was said by the bench comprising of chairman, U.N. Panjiar, and its member S.C. Jha, in an order. The order further said that the dues which are to be paid by the old owner would be recovered under the provisions of Bihar and Orissa Public Demand Recovery Act,1914.  However, the State Electricity Regulatory Commission said that if the new owner is an associate or relative of the previous owner, as defined under section 2 and 6 respectively, of the Companies Act,1956,  then such an applicant can be refused for new connection. The Bihar Electricity Regulatory Commission further states that the  licensees would not refuse electricity connection to anyone on this ground, unless an opportunity to present their case is provided to the applicant and reasoned order is passed by an officer designated by the licensee for the purpose. The order of refusal shall be communicated within one month of receipt of the application.

 The Uttar Pradesh Electricity Regulatory Commission has also clearly stated in there supply code under clause 4.3 (f) that it is the duty of the new owner or the new applicant for the fresh connection of electricity supply to verify that all the dues have been paid by the previous owner and has obtained no-dues certificate from the licensee. In case the no-dues certificate has not been obtained by the previous owner, the new owner may before the purchase of the property approach the Licensee for the no-dues certificate.

The Tamil Nadu Electricity Board has also in its supply code mentioned in clause 17(3) that in case the present owner of the premises intends to sell his property/building, then he has to a give a 3 months’ notice for the same to the licensee and clear all the dues up to the date of sale/disposal/lease. When such a notice is presented, the contract between the old owner and the Licensee will cease to operate from the date specified in the notice and the connection of electricity supply will be cut so that the new owner of the premises could apply for the fresh connection. [3]

A good part about the supply code of Tamil Nadu Electricity Board is that it has protected the interest of the new owner of the premises in case the old owner fails to comply with the above clause. Another clause i.e. 17(4) says that in case the old owner of the premises fails to give a notice for the sale or intension for sale of the premises as mentioned in clause 17(3), the Licensee shall have the right to claim for the consumption and dues that are to be paid by the old owner even after the sale/disposal/lease has taken place of the premises. In this way  it has given a protection to the new owner from any dues that are to be paid by the old owner.

Even the supply code of Delhi Electricity Regulatory Commission (DERC) is similar to that of Tamil Nadu Electricity Board as it also mentions the same in clause 15(ii) as what is mentioned in the supply code of Tamil Nadu Electricity Board in clause 17(4).[4]

Thus by looking at the supply code of these State’s Electricity Regulatory Commissions, it could be clearly established that the State has assured to protect the interest of the new owner of the premises by creating a statutory authority for the governance of such issue so that the old owner can be held liable for such encumbrance. Also, the Supreme Court by passing several judgements has cleared this issue in the eyes of the law that in case of non-existence of a statutory authority, a new owner of the premises shall not be held liable for the dues of the previous owner as per the general rule of law but,  if there is a statutory authority governing the same and according to that statutory norm, the new owner is bound to pay for the pending bills/dues of the previous owner, it becomes ultra vires of the court and if such issue goes to the court of law, then the court would be bound to pass a judgement in favour of the old owner and the new owner would then have to pay the dues of the previous owner.

[1] http://www.rediff.com/money/2004/jul/17spec5.htm

[2] Haryana State Electricity Board v. Hanuman Rice Mills, Dhanauri, (2010) 9 SCC 145 = AIR 2010 SC 3835

[3] http://tnerc.tn.nic.in/regulation/S%20Code/Supply%20Code%20Amendments%20upto%2031-12-2009.pdf

[4] http://www.delhisldc.org/Resources%5CSupplyCode.pdf