Auction purchasers not liable for previous owners' electricity dues

The Supreme Court held that auction purchasers are not liable for the electricity dues of previous owners in cases such as Waxpol Industries, Suman Packaging, Abhay Kumar, and North East Fertilizers. However, in the case of Isha Marbles, the judgment was set aside, and the appeal was allowed with costs. The Court emphasized that auction purchasers should not be burdened with the liabilities of previous consumers unless there is a specific clause stating otherwise.

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Issues Involved:
1. Liability of auction purchaser for old electricity dues.
2. Application of Section 24 of the Electricity Act.
3. Statutory obligations of the Electricity Board.
4. Contractual obligations between the consumer and the Board.

Issue 1: Liability of Auction Purchaser for Old Electricity Dues

The main issue is whether the auction purchaser is liable to meet the liability of old consumer for electricity dues to the premises which is purchased by him in the auction sale from Bihar State Financial Corporation u/s 29(1) of the Bihar State Financial Corporation Act, 1951.

In Civil Appeal No. 1418 of 1995 (Isha Marbles), the appellant purchased mortgaged assets in an auction but was asked to discharge the liabilities of the previous consumer, which was challenged and dismissed by the High Court. Similarly, in Civil Appeal No. 1420 of 1995 (Waxpol Industries), the High Court allowed the writ petition on the ground that the present occupants are free from any encumbrance or liability towards the payment of outstanding electricity dues, as Neo Chemicals and Waxpol Industries are distinct legal entities. The High Court ruled that unless there is a clause that the auction purchaser shall also bear the liability of the Electricity Board, the latter cannot insist on clearing dues of the erstwhile owner for providing a new connection.

Issue 2: Application of Section 24 of the Electricity Act

Section 24 of the Electricity Act allows the Board to disconnect supply if dues are not paid. The High Court in Suman Packaging case held that Section 24 cannot apply where a transferee, who had no connection with the original consumer, purchases the property bona fide and in good faith. The Board is under statutory obligation to supply electrical energy subject to fulfillment of conditions under Clause VI of Schedule 1 of the Electricity Act.

Issue 3: Statutory Obligations of the Electricity Board

The Board, being a 'State' within the meaning of Article 12 of the Constitution, must act fairly and reasonably. The High Court emphasized that a purchaser like the writ petitioner cannot be expected to inquire about outstanding dues from the previous consumer. The Board's circular dated 19.1.72 stated that in cases of genuine purchase, it would neither be legal nor proper to insist on the realization of arrears for giving re-connection.

Issue 4: Contractual Obligations Between the Consumer and the Board

The relationship between the Board and the consumer is purely contractual. The Board cannot enforce a contractual liability against a third party like the auction purchaser. The High Court in Suman Packaging ruled that the auction purchaser does not intend to obtain the continuance of supply of electrical energy on the basis of the old agreement and is ready to enter into a new contract.

Conclusion:

The Supreme Court upheld the High Court's judgments in Waxpol Industries, Suman Packaging, Abhay Kumar, and North East Fertilizers cases, holding that the auction purchasers are not liable for the electricity dues of the previous owners. However, the judgment in Isha Marbles was set aside, and the appeal allowed with costs.

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