Agrawal Structure Mills (PVT.) LTD. vs. Chhattisgarh State Power Distribution Company Limited

Held

The Court held that the petitioner, as an auction purchaser under the SARFAESI Act, 2002, is not liable for the outstanding electricity charges of the previous owner, M/s Om Krishna Bajrang Alloy (P) Ltd. The Court reasoned that the auction advertisement and sale certificate did not disclose the electricity dues, only a GST demand. The sale was conducted on an 'as is where is' basis, and the SARFAESI Act, 2002, with its overriding effect under Section 35, would prevail over Clause 4.19 of the Electricity Supply Code. The Court relied on the Supreme Court's judgments in NESCO Vs. Raghunath Paper Mills (P) Ltd. and other similar cases, which establish that an auction purchaser cannot be compelled to clear past arrears of the previous consumer, and a power connection cannot be withheld on that ground. The Court found the bank acted callously in failing to detect and disclose the significant outstanding electricity charges. The Court set aside the impugned letter (Annexure P-1) and directed respondents No. 1 and 2 (CSPDCL) to grant an electricity connection to the petitioner, subject to compliance with the Electricity Act, 2003, while clarifying that this would not prevent CSPDCL from recovering the dues from the erstwhile debtor. The Court expressly did not decide on the bank's liability to adjust the electricity dues.

Facts

The petitioner, Agrawal Structure Mills (Pvt.) Ltd., purchased a property through an auction sale conducted by Allahabad Bank under the SARFAESI Act, 2002, pursuant to an advertisement dated 31/10/2018. The advertisement disclosed an encumbrance of Rs. 9,16,967/- from the Central GST Division. After purchasing the property for Rs. 2.55 crores, the petitioner discovered outstanding electricity dues of Rs. 77,29,708/- owed by the erstwhile defaulter, M/s Om Krishna Bajrang Alloy (P) Ltd. The petitioner made partial payments under duress and sought an electricity connection, which was denied by the Chhattisgarh State Power Distribution Company Limited (CSPDCL) based on Clause 4.19 of their Supply Code, 2011, requiring clearance of all dues. The petitioner challenged this denial.

Key Issues

1. Whether the petitioner, as an auction purchaser under the SARFAESI Act, 2002, is liable to clear the outstanding electricity dues of the previous owner, considering the advertisement and sale certificate did not disclose these dues? (Question of law) Petitioner's arguments: The petitioner contended that the auction advertisement and sale certificate explicitly mentioned only a GST encumbrance, not the substantial electricity dues. They relied on the Supreme Court judgments in Southern Power Distribution Company of Telangana Limited Vs. Gopal Agarwal & ors. and NESCO Vs. Raghunath Paper Mills (P) Ltd., which held that auction purchasers are not liable for past arrears of previous owners, especially when the sale is on an 'as is where is' basis and the dues were not disclosed. They argued that the bank's non-disclosure led them to purchase the property and that the bank should adjust the electricity dues. Respondents' arguments: CSPDCL argued that they are bound by their Supply Code, 2011, specifically Clause 4.19, which mandates clearance of all dues before providing an electricity connection. They contended that the petitioner gave an undertaking to pay the electricity dues, making them liable, and that the cited precedents do not apply as no such undertaking was given in those cases. The bank argued that they had no way of knowing the outstanding electricity dues as the electricity board did not raise any objection at the time of the auction advertisement.