Electricity Connection Cannot Be Denied to Auction Buyers Due to Previous Owner’s Dues: Supreme Court

The Supreme Court of India recently ruled in favor of Gopal Agarwal, affirming that a fresh electricity connection cannot be denied to a property purchased in an auction due to unpaid dues of the previous owner. The case involved a dispute with the Southern Power Distribution Company of Telangana Ltd., which refused to provide a low-tension domestic electricity connection to Agarwal because of outstanding electricity dues of the former owner of the property.

Background of the Case

The dispute began when City Union Bank issued a tender notice under the SARFAESI Act, 2002, to sell land, plant, and machinery belonging to M/s J.T. Alloys Private Limited in Bollaram village, Medak district, due to loan defaults. Gopal Agarwal emerged as the highest bidder in the auction for a dry land measuring 0.36 hectares and received a sale certificate on April 12, 2006.

However, after taking possession of the property, Agarwal applied for a new electricity connection, which was denied by the Southern Power Distribution Company of Telangana Ltd. The company cited that a sum of Rs.1,88,23,185/- was pending against M/s J.T. Alloys Private Limited and requested City Union Bank to transfer the sale proceeds to settle the dues.

When the Bank responded that the entire sale amount had been adjusted toward its own dues, Agarwal approached the Andhra Pradesh High Court, seeking a direction for electricity supply.

Arguments of the Petitioner (Gopal Agarwal)

The petitioner, Gopal Agarwal, contended that:

He had purchased the property through a legally conducted auction and was not responsible for the previous owner’s liabilities.
The auction sale was conducted on an “as is where is” basis, meaning he could not be held liable for prior dues.
Despite not being a defaulter himself, the electricity provider was unfairly denying him a new connection.
The refusal to provide an electricity connection was unjust and against established legal principles.

Arguments of the Respondent (Southern Power Distribution Company of Telangana Ltd.)

The electricity company defended its decision, arguing:

There were outstanding dues on the property, which should be cleared before any new connection could be issued.
The liability for unpaid electricity bills should be transferred to the new owner since the power supply was being restored to the same premises.
The auction buyer should have taken the pending dues into consideration before purchasing the property.
The company was within its rights to deny a fresh connection based on the outstanding arrears.

High Court’s Decision

The Andhra Pradesh High Court ruled in favor of the petitioner, directing the power company to provide the connection. The Court relied on previous judgments in Isha Marbles v. Bihar State Electricity Board (1995) and Ahmedabad Electricity Co. Ltd. v. Gujarat Inns (P) Ltd. (2004), which held that an auction purchaser cannot be held liable for past electricity dues.

The High Court found that:

The petitioner was not a defaulter and had no contractual obligation to clear the previous owner’s liabilities.
The electricity company had failed to prove that Agarwal had agreed to pay the dues of the previous consumer.
The refusal to provide a new connection was an unreasonable act on the part of the company.

The power distribution company then appealed to the Supreme Court.

Supreme Court’s Analysis and Judgment

The Supreme Court upheld the High Court’s decision, emphasizing the principle that auction buyers cannot be penalized for the financial liabilities of past owners. The Court stated:

“It was held in the said judgment that an auction purchaser cannot be called upon to clear the past arrears. It was also held that a power connection to an auction purchaser cannot be withheld for the dues of the past owner.”

In reaching its decision, the Court relied on several key precedents:

In Isha Marbles, the Court had ruled that an auction purchaser was entitled to a fresh electricity connection without being liable for the previous owner’s arrears.
In Ahmedabad Electricity Co. Ltd., the Supreme Court reiterated the principle that a fresh connection could not be denied due to past dues.
In NESCO v. Raghunath Paper Mills (P) Ltd. (2012), the Court held that electricity companies cannot refuse service to an auction purchaser merely because of previous liabilities.

In this case, the Supreme Court determined that:

The sale had been conducted under the SARFAESI Act, which cleared the auction purchaser from any encumbrances.
Agarwal had applied for a new, independent electricity connection, which should not be contingent upon past dues.
The power company had no legal grounds to deny service based on the financial defaults of the prior owner.

Accordingly, the Court dismissed the appeal by the power distribution company and affirmed the High Court’s ruling.

Final Verdict

The Supreme Court upheld the rights of auction buyers, ruling that an electricity connection cannot be denied due to unpaid bills of the previous owner. The judgment ensures that auction purchasers are not unfairly burdened with past liabilities and provides clarity on the obligations of electricity providers.

Implications of the Judgment

This ruling has significant implications for property transactions and utility services:

Strengthens the legal position of auction buyers, protecting them from inheriting previous owners’ liabilities.
Ensures that electricity companies cannot deny fresh connections based on past dues.
Provides clarity on the responsibilities of power distribution companies in cases of property transfers.
Reinforces the principle that government auction sales under the SARFAESI Act transfer ownership free from encumbrances.

This landmark judgment prevents electricity providers from unfairly burdening auction purchasers with past liabilities and upholds the rights of buyers to access essential services.

Don’t miss out on the full details! Download the complete judgment in PDF format below and gain valuable insights instantly!

Download Judgment: Southern Power Distr vs Gopal Agarwal & Ors. Supreme Court of India Judgment Dated 27-07-2017.pdf

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