Sarfaesi Act: Statutory dues can’t be waived off contractually, says Supreme Court

New Delhi, June 3: In an important order, the Supreme Court has held that statutory dues under the Electricity Act cannot be characterised as purely contractual and waived off under an auction of a distressed asset under the Sarfaesi Act. 

The case relates to the auction of a water bottling plant in Hyderabad by Syndicate Bank after the owner failed to repay a loan, BloombergQuint reported. 

Consequently, the bank conducted an auction of the property on an ‘as is, where is, whatever there is and without recourse basis’. After emerging as the highest bidder, the auction purchaser sought reinstatement of electricity supply on the site. 

The Telangana State Southern Power Distribution Company, however, denied the sanction and made demands from the auction purchaser and asserted its right to recover the dues in accordance with the terms and conditions of Telangana’s electricity supply regulations. The power utility moved the Supreme Court after the Telangana High Court directed it to sanction the supply without insisting on past dues from the auction purchaser.

A bench comprising Justice Sanjay Kishan Kaul and Justice KM Joseph set aside the high court’s order and allowed the power utility to make a demand for past arrears from the auction purchaser.

After being denied an electricity connection, the auction purchaser moved the high court, arguing that since it was a subsequent purchaser, it was not liable for dues of the past owner towards the power utility.

Further, relying on a past decision of the Supreme Court, it argued that liability to pay dues is created only against a consumer as defined in the Electricity Act. As the auction purchaser was not a consumer when seeking a new connection, no demand for past dues would arise, it said.

The Supreme Court dismissed the auction purchaser’s argument and said that the auction purchaser was made aware about the past liabilities as there was a specific quantification of dues, including electricity dues in the auction notice. Different high courts have given varying judgments on liability of past dues under the Electricity Act, it said. 

The top court said dues having a statutory character cannot be waived off. Similarly, they cannot be classified as dues of purely contractual nature. Liability to pay past dues will fall on the purchaser if auction is conducted on an as is, where is, whatever there is and without recourse basis, the court said.

Read more at: https://www.bloombergquint.com/law-and-policy/sarfaesi-act-statutory-dues-cant-be-waived-off-contractually-says-supreme-court

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