When businesswoman Seema B Kumar bought a factory from the Kerala Financial Corporation she made one big mistake. She didn't check whether the factory's earlier owner had cleared all his electricity bills. As it turned out, this was a costly error.
It was, perhaps, a mistake that anyone could have made. Kumar purchased the industrial unit from the Kerala Financial Corporation at an auction, after the original owner had defaulted on a loan.
Once Kumar's bid for the purchase of the industrial premises, named Arjun Associates, was confirmed, the property was conveyed in her name.
After taking possession of the premises, Kumar immediately applied to the Kerala State Electricity Board for an electricity connection. The factory's electricity had been disconnected because the earlier owner hadn't cleared his dues.
That was when she received a nasty shock. The Electricity Board demanded that she pay the unpaid dues owed by the factory's earlier owner. They said a new connection would be given only if the factory's new owner cleared the earlier dues.
Kumar resisted the demand, contending that the purchaser of a property could not be mulcted with a liability he or she had not caused. She argued that electricity is supplied not to the premises but for the use of the owner of the premises. She was the present owner of the unit and was not liable for the dues payable by the former owner or consumer.
Kumar's contentions cut no ice with the Electricity Board and, as a result, she filed a petition before the Kerala high court. When this failed, she filed an appeal before the Division Bench of the high court.
The Electricity Board argued that the new owner had to clear the arrears of the earlier owner as Clause 15 (e) of the regulations relating to Condition of Supply of Electricity Energy had so mandated.
Clause 15(e) stipulates that the "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."
While the Division Bench of the Kerala high court did observe that it caused hardship to the new consumer of electricity to be burdened with the arrears of electricity consumed by the earlier owner, it had no alternative but to agree with the Kerala State Electricity Board in the light of the above mentioned regulations.
In its judgement in Seema B Kumar vs Assistant Executive Engineer, Kerala Electricity Board and Others, the high court dismissed the appeal and directed Kumar to clear the arrears if she intended to avail of electricity supply from the Board.
In the case above, it was also asserted that the regulation, relied upon by the Electricity Board, was ultra vires the Constitution of India because it had the effect of invidious discrimination between the two sets of electricity consumers -- namely one who is not to pay anything extra and the other who is called upon to clear the electricity dues of the previous owner as well.
The Kerala high court, while appreciating the plea as an arguable one, rejected it because in an earlier judgement the same high court in the matter of K J Dennis vs Official Liquidator had already considered the vires of the above stated Regulation 15(e) and held it to be legal and sustainable.
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. In so far as electricity rules are concerned, practically every Electricity Board has promulgated rules akin to the above stated Regulation 15(e) of the Condition of Supply of Electricity Energy. The courts have held that such a provision is a valid and legal one.
Therefore, it is advisable for every person going in for the purchase of a property, whether residential or industrial, to ascertain the electricity dues from the seller and ensure that the same were either cleared or a suitable credit thereof was given.
Failing to do so can lead to a predicament similar to that faced by Seema Kumar and it may also be kept in view that sometimes the dues run into a very large amount.
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