Chamundeshwari Electricity Vs International Asset

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1 - NC: 2025:KHC:34554 WP No. 29628 of 2015

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IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 3^RD DAY OF SEPTEMBER, 2025

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BEFORE

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THE HON'BLE MR. JUSTICE R. NATARAJ WRIT PETITION NO. 29628 OF 2015 (GM-RES)

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BETWEEN:

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CHAMUNDESHWARI ELECTRICITY SUPPLY COMPANY LIMITED, A COMPANY INCORPORATED UNDER THE COMPANIES ACT, 1956, HAVING ITS REGISTERED OFFICE AT NO.927, NEW KANTHARAJ URS ROAD, SARASWATHIPURAM, MYSURU-570009, REPRESENTED BY SUPERINTENDING ENGINEER

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…PETITIONER

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(BY SRI. S.SRIRANGA, SENIOR ADVOCATE FOR SMT. SUMANA NAGANAND, ADVOCATE)

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AND:

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Digitally signed by SUMA Location: HIGH COURT OF KARNATAKA

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INTERNATIONAL ASSET RECONSTRUCTION COMPANY PRIVATE LIMITED, A COMPANY INCORPORATED UNDER THE PROVISIONS OF THE COMPANIES ACT, 1956 HAVING ITS CORPORATE OFFICE AT A-508, 215 ATRIUM ANDHERI KURLA ROAD, ANDHERI (EAST), MUMBAI-400093, REPRESENTED BY ITS DIRECTOR

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HASSAN BIOMASS POWER COMPANY LIMITED A COMPANY INCORPORATED UNDER THE PROVISIONS OF THE COMPANIES ACT, 1956, HAVING ITS REGISTERED OFFICE AT 5022, SHOBHA DAHILA, SARJAPURA, OUTER RING ROAD, NEAR BELLANDUR LAKE, BANGALORE -560103.

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REPRESENTED BY ITS CHIEF OPERATIONS MANAGER

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DEPUTY COMMISSIONER HASSAN DISTRICT, HASSAN-573201

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…RESPONDENTS (BY SRI. DHIRENDRA R. KATTI, ADVOCATE FOR RESPONDENT NO.1; SRI. SRINIVASA KUMAR M., HIGH COURT GOVERNMENT PLEADER FOR RESPONDENT NO.3;

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VIDE ORDER DATED 12.12.2024, NOTICE SERVED ON RESPONDENT NO.2 BY WAY OF PAPER PUBLICATION)

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THIS WRIT PETITION IS FILED UNDER ARTICLES 226 AND 227 OF THE CONSTITUTION OF INDIA PRAYING TO QUASH THE AUCTION NOTICE DATED 12.06.2015 (ANNEXURE-J) ISSUED BY RESPONDENT NO.1 AND ETC.

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THIS PETITION, COMING ON FOR PRELIMINARY HEARING IN 'B' GROUP, THIS DAY, ORDER WAS MADE THEREIN AS UNDER: CORAM: HON'BLE MR. JUSTICE R. NATARAJ

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ORAL ORDER

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The petitioner has sought for the following reliefs:-

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(a) Quash the auction notice dated 12.06.2015 (Annexure - J) issued by Respondent No.1;

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(b) Declare that the action of the Respondent No.1 in conducting the auction sale in furtherance of auction notice dated 12.06.2015 is illegal and arbitrary;

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(c) Declare that the rights of Respondent No.1 to recover dues of Respondent No.2 is subject to the right of the Petitioner to recover electricity dues under the provisions of the Karnataka Land Revenue Act 1964;

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(d) Declare that the Petitioner has a right to recover arrears of electricity tariff as arrears of land revenue in terms of Regulation 41 of the KERC (E S & D) Code 2000-01;

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(e) Direct the 3^rd Respondent to initiate action in terms of communication dated 2.7.2015 (Annexure - N).

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(i) The petitioner is an electricity distribution

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company in the State of Karnataka. It had entered into a Power Purchase Agreement with the respondent No.2 for supply of 8 megawatt of electricity to be generated at the biomass based power plant of respondent No.2 at Hassan. It is contended that the unit of the respondent No.2 achieved commercial operation in June, 2006 and commenced supply of electricity to the

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petitioner. It is contended that during June, 2007, respondent No.2 suspended operations, as a result of which it discontinued supply of electricity to the petitioner as agreed under the Power Purchase Agreement. From June 2007 onwards, the respondent No.2 started importing power for its captive consumption and the petitioner had raised invoices to the tune of Rs..43,11,000/-. The petitioner followed-up the recovery of the said amount and the respondent No. 2 sought time to pay the electricity bills. On 21.05.2011, the petitioner addressed yet another letter to the respondent No.2 bringing to its notice that the unit had not been revived and that the respondent No.2 instead of supplying power was availing electricity for auxiliary purposes. It was also brought to the notice of respondent No.2 that a sum of Rs.43,11,657/- was due and was payable. The respondent No.2 was therefore, called upon to pay the said dues within seven days, failing which, electricity supply would be discontinued.

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(ii) In response to the said letter, the respondent No.2

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replied on 23.05.2011 stating that recovery proceedings were pending before the Debt Recovery Tribunal and that they were

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not in a position to settle the dues of the petitioner immediately and requested additional time to settle the dues within 20.06.2011. It was also informed by the said communication that the financing bank had unilaterally sold its security interest in the plant to the respondent No.1 and that proceedings were initiated before the Debt Recovery Tribunal by the respondent No.2 to protect its interest. On 02.06.2011, the Executive Engineer (Electrical), Operation and Maintenance Division, Hassan, addressed a letter dated 02.06.2011 to the Executive Engineer (Electrical), TL & SS Division, KPTCL, bringing to his notice the fact that the respondent No.2 had not supplied energy in keeping with the required norms but had instead drawn energy valued at a sum of Rs.43,11,000/- from the grid as on 01.05.2011, which was unpaid. Hence, recommendation was made for disconnection of power supply. It is contended that the power supply to the plant of respondent No.2 was disconnected on 13.06.2011.

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(iii) It is claimed that the respondent No.2 was unable

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to commence generation and was unable to discharge its dues and therefore, the plant came to be closed down in 2011 and

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the assets of the respondent No.2 were taken over by the respondent No.1. Ever since then, the petitioner had been making efforts to recover the amounts due from the respondent No.2. However, it was unsuccessful in doing so and therefore, it addressed a letter dated 06.02.2015 to the respondent No.1 bringing to its notice the fact that the respondent No.2 owed a sum of Rs.43,11,000/- to the petitioner and that unit of respondent No.2 was taken over by respondent No.1 on 'as is where is basis' and therefore, respondent No.1 was liable for the dues of respondent No.2. Therefore, respondent No.1 was called upon to make the payment at the earliest. In response to the said communication, the respondent No.1 addressed a letter dated 18.02.2015 informing petitioner that the liability of the respondent No.2 towards unpaid electricity bills continued to be the liability of the respondent No.2 and that it was not responsible.

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(iv) It is contended that on 12.06.2015, the petitioner came across a publication in a newspaper caused by the respondent No.1 expressing its intent to auction the plant and machinery as well as the immoveable assets of the respondent

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No.2. The publication disclosed that the date of inspection of the property was 06.07.2015 and the last date to receive bids was 24.07.2015 and the date of opening tenders was 25.07.2015. The petitioner therefore, addressed a letter dated 02.07.2015 to the respondent No.1 bringing to its notice the claim of the petitioner against the respondent No.2 and filed objection against the unilateral sale of assets of the respondent No.2. The petitioner also addressed a letter dated 02.07.2015 to the respondent No.2 once again calling upon it to pay the arrears of electricity charges. On 07.07.2015, the respondent No.1 replied to the letter dated 02.07.2015 reiterating that it was not liable to pay the dues of the respondent No.2. The petitioner claims that it is a licencee under the Electricity Act, 2003 and the Karnataka Electricity Regulatory Commission (Electricity Supply and Distribution) Code, 2000-2001 (henceforth referred to as 'K.E.R.C. (Electricity Supply and Distribution) Code, 2000-2001') enables it to recover the arrears of electricity charges as arrears of land revenue. The petitioner therefore, initiated proceedings under Sections 161 to 168 of the Karnataka Land Revenue Act, 1964 read with Rules 112 and 113 of the Land Revenue Rules, 1966. The

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petitioner contends that it has a right to proceed against the assets of the respondent No.2 as if the same was arrears of land revenue and if the property is brought for sale, the petitioner would be deprived of an opportunity to proceed against the properties of the respondent No.2.

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(v) The petitioner is therefore, before this Court seeking the reliefs mentioned above.

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(i) The learned Senior counsel for the petitioner reiterated the above contentions and submitted that there is no

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dispute that the respondent No.2 is liable in a sum of Rs.43,11,000/- towards the electricity charges. He contends that under the under the K.E.R.C. (Electricity Supply and Distribution) Code, 2000-2001, the petitioner is entitled to recover the arrears of electricity charges as arrears of land revenue. He contends that the petitioner has a preferential charge over the assets of the respondent No.2 to the extent of the dues and therefore, the respondent No.1 cannot be allowed to proceed with the intended auction. He submits that if this is allowed, the petitioner would be deprived of an opportunity to recover its dues from the plant and machinery of the

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respondent No.2. He therefore, prays that the impugned auction notice as well as the proceedings furtherance to the auction notice be set at naught and it be declared that the rights of the respondent No.1 to recover the dues of the respondent No.2 is subject to the right of the petitioner to recover electricity dues under the provisions of the Karnataka Land Revenue Act, 1964.

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(ii) The learned Senior counsel for the petitioner submitted that arrears of electricity charges can be recovered as arrears of land revenue in view of the Regulation 41 of the K.E.R.C. (Electricity Supply and Distribution) Code, 2000-2001 and Conditions of Supply of Electricity of Distribution Licensees in the State of Karnataka, 2006. He contends that under Section 87 of the Karnataka Land Revenue Act, 1964, arrears of land revenue is a permanent charge on the property and therefore, the arrears of electricity charge payable by the respondent No.2 should be treated as a charge on the property of respondent No.2. In support of this contention, he relied upon the judgment of the Hon'ble Apex Court in K.C. Ninan

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vs. Kerala State Electricity Board and others [Civil Appeal Nos.2109-2110/2004] , where it was held that,

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"Electricity utilities can create a charge by framing subordinate legislation or statutory conditions of supply enabling recovery of electricity arrears from a subsequent transferee."

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(iii) Learned Senior counsel therefore, contends that the impugned auction cannot be allowed as that would result in depriving an opportunity to the petitioner to recover the arrears of electricity charges. He contends that the dues payable to the petitioner is also a Government dues recoverable as arrears of land revenue. He contends that under Section 3 of the Karnataka Public Moneys (Recovery of Dues) Act, 1979, the Government dues can be recovered as arrears of land revenue. He also referred to the judgment of the Hon'ble Apex Court in

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Telangana State Southern Power Distribution Company Limited and another vs. Srigdhaa Beverages [(2020) 6 SCC 404], where it was held that electricity dues are statutory in nature under the Electricity Act and as per the terms and conditions of supply, cannot be waived in view of Section 56 of the Electricity Act, 2003. He contends that the petitioner is a

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secured creditor and being a Government company, it is entitled to invoke the provisions of the insolvency and bankruptcy code. In support of this contention, he has relied upon the judgment Hon'ble Apex Court in State Tax Officer vs. Rainbow Paper Ltd., [(2023) 9 SCC 545] and Sanjay Kumar Agarwal vs. State Tax Officer and another [(2024) 2 SCC 362] .

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(i) The respondent No.1 has filed the statement of objections contending that it is registered as a securitization and asset reconstruction company under Section 3 of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (henceforth referred to as 'SARFAESI Act, 2002'). It has contended that its shareholding is held by private individuals and entities. Therefore, it has claimed that it is not a State or its agency or instrumentality as defined under Article 12 of the Constitution of India and hence, the writ petition is not maintainable against it.

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(ii) It is contended that the auction held on 25.07.2015 failed for want of bids and therefore, the writ petition has

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become infructuous. Further, it is contended that all disputes relating to pending electricity dues should be addressed to the Central Electricity Regulatory Commission and the appeals therefrom to the Appellate Tribunal constituted for that purpose. Therefore, it is contended that the writ petition before this Court is not maintainable. It is contended that as per the Power Purchase Agreement dated 15.03.2006 entered into between the petitioner and respondent No.2, they had agreed for dispute resolution by referring the dispute to the Karnataka Electricity Regulatory Commission. Therefore, it is contended that in view of the alternative remedy, this writ petition is not maintainable.

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(iii) It is contended that its authorized officer in exercise of the powers conferred under the SARFAESI Act, 2002, issued a demand notice dated 15.05.2010 demanding the outstanding payable by the respondent No.2. On failure of the respondent No.2 to repay the dues, the authorized officer exercised powers under the SARFAESI Act, 2002 and issued a possession notice dated 21.07.2011 and took possession of the mortgaged and hypothecated properties. It thereafter put up the properties for

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sale on 17.10.2011, 18.01.2012, 17.09.2012 and 25.07.2015. However, the same did not evoke satisfactory response and therefore, the respondent No.1 once again put up the secured assets for auction on 04.09.2015. An offer was received for sale of land, building, plant and machinery. However, the sale of plant and machinery could not be completed as the successful bidder failed to pay the balance payment and accordingly, his EMD was forfeited. As regards the sale of land and building, the offer of the bidder was accepted. It is contended that the respondent No.1 again put up the plant and machinery for sale on 28.10.2015. It is contended that if the petitioner is aggrieved by the action, it has to approach the Tribunal under Section 17 of the SARFAESI Act, 2002 and cannot approach this Court.

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An affidavit is also filed by respondent No.1 stating that as per the interim order dated 20.07.2015 passed by this Court, it had proceeded with the auction of land, building, plant and machinery and had recovered Rs.12,90,00,000/- as against the total outstanding of Rs.44,11,01,857.40. It is contended that as per the interim order dated 20.07.2015, the respondent

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No.1 retained an amount of Rs.43,12,000/- and had not appropriated it towards the outstanding.

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The learned counsel for respondent No.1 submitted that the respondent No.1 has retained a sum of Rs.43,12,000/and therefore, would follow any direction that may be issued in this writ petition.

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The learned High Court Government Pleader appearing for respondent No.3 submitted that the petitioner has made a request to initiate proceedings to recover the electricity arrears as arrears of land revenue and therefore, steps in that regard would be taken in accordance with law.

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I have considered the submissions of the learned Senior counsel for the petitioner as well as the learned counsel for respondent No.1 and the learned High Court Government Pleader for respondent No.3.

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This Court passed an interim order on 20.07.2015, which reads as follows:-

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"Learned Government Advocate to accept notice for respondent No.3.

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Copies of the petition papers be served on the learned Government Advocate.

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Issue notice to respondents No.1 and 2.

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In the meanwhile, respondent No.1 though may proceed further with the sale process pursuant to the notification dated 12.06.2015, out of the amount realised thereto, a sum of Rs.43,11,657/shall not be appropriated by them, but shall be kept in a separate account, pending further orders from this Court."

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The respondent No.1 had proceeded to auction the land, building, plant and machinery of the respondent No.2 on 04.09.2015. The facts which are not in dispute are that the Power Purchase Agreement was entered into between the petitioner and respondent No.2 on 15.03.2006 whereunder the respondent No.2 had agreed to generate and supply 8 megawatt of electricity from its biomass based power plant at Hassan. That the respondent No.2 had stopped operations from June, 2007 and had consumed electricity supplied by the petitioner for which invoices were raised to the tune of Rs.43,11,000/-. The respondent No.2 had availed financial assistance from a Bank, which transferred the secured asset

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along with the right to recover the money to the respondent No.1. The question therefore, that arises for consideration is,

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"Whether the respondent No.1 as a transferee is bound in law to pay the arrears of electricity charges payable by the respondent No.2?"

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As rightly contended by the learned Senior counsel for the petitioner, under Regulation 41 of the K.E.R.C. (Electricity Supply and Distribution) Code, 2000-2001, a provision is made for recovery of dues as arrears of land revenue under the Karnataka Land Revenue Act and rules made thereunder. Following this, the petitioner has admittedly addressed a letter dated 02.07.2015 to the respondent No.1 to take steps to recover the arrears of electricity charges as arrears of land revenue. The Hon'ble Apex Court in the case of K.C. Ninan, referred supra, while considering the question whether the electricity utilities could refuse to service an electric installation on the ground that there were arrears of electricity charges and when the subsequent purchaser of the premises had refused to pay the arrears, concluded as follows:-

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" I. Conclusions

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328. The conclusions are summarized below:-

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a. The duty to supply electricity under Section 43 of the 2003 Act is not absolute, and is subject to the such charges and compliances stipulated by the Electric Utilities as part of the application for supply of electricity;

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b. The duty to supply electricity under Section 43 is with respect to the owner or occupier of the premises. The 2003 Act contemplates a synergy between the consumer and premises. Under Section 43, when electricity is supplied, the owner or occupier becomes a consumer only with respect to those particular premises for which electricity is sought and provided by the Electric Utilities.

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c. For an application to be considered as a 'reconnection', the applicant has to seek supply of electricity with respect to the same premises for which electricity was already provided. Even if the consumer is the same, but the premises are different, it will be considered as a fresh connection and not a reconnection;

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d. A condition of supply enacted under Section 49 of the 1948 Act requiring the new owner

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of the premises to clear the electricity arrears of the previous owner as a precondition to availing electricity supply will have a statutory character;

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e. The scope of the regulatory powers of the State Commission under Section 50 of the 2003 Act is wide enough to stipulate conditions for recovery of electricity arrears of previous owners from new or subsequent owners;

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f. The Electricity supply Code providing for recoupment of electricity dues of a previous consumer from a new owner have a reasonable nexus with the objects of the 2003 Act;

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g. The rule making power contained under Section 181 read with Section 50 of the 2003 Act is wide enough to enable the regulatory commission to provide for a statutory charge in the absence of a provision in the plenary statute providing for creation of such a charge;

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h. The power to initiate recovery proceedings by filing a suit against the defaulting consumer is independent of the power to disconnect electrical supply as a means of recovery under Section 56 of the 2003 Act;

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i. The implication of the expression "as is where is" basis is that every intending bidder is put on notice that the seller does not undertake responsibility in respect of the property offered for sale with regard to any liability for the payment of dues, like service charges, electricity dues for power connection, and taxes of the local authorities; and

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j. In the exercise of the jurisdiction under Article 142 of the Constitution, the Electric Utilities have been directed in the facts of the cases before us to waive the outstanding interest accrued on the principal dues from the date of application for supply of electricity by the auction purchasers."

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Except the K.E.R.C. (Electricity Supply and Distribution) Code, 2000-2001, which enabled the petitioner to recover arrears of electricity dues as arrears of land revenue, no provision of law is cited justifying recoupment of the unpaid electricity charges from the subsequent purchaser. There is no provision contained in the K.E.R.C. (Electricity Supply and Distribution) Code, 2000-2001 enabling the petitioner to treat the unpaid electricity charges as a charge on the property of respondent No.2. The petitioner must have framed regulations under the rule making power in Section 181 of the Electricity

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Act, 2003. The petitioner has already disconnected the electric supply to the unit of respondent No.2 and has initiated steps for recovery of arrears of land revenue. In view of the law declared in K.C.Ninan, referred supra and the shortcoming in the K.E.R.C. (Electricity Supply and Distribution) Code, 20002001, the reliefs sought for to stall the auction cannot be granted as sought for, except directing the respondent No.3 to initiate action to consider the request of the petitioner to take steps to recover the unpaid electricity charges as arrears of land revenue.

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In view of the above, the following order is passed:

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ORDER

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(i) This writ petition is allowed in part .

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(ii) The challenge to the auction notice dated 12.06.2015 issued by respondent No.1 and the consequent auction held is rejected.

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(iii) Likewise, the relief sought at prayer (c) is rejected.

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(iv) The petitioner is entitled to recover the arrears of electricity charges as arrears of land revenue in terms of the Regulation 41 of the Karnataka Electricity Regulatory Commission (Electricity Supply and Distribution) Code, 2000-2001.

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(v) The respondent No.3 is directed to initiate necessary action as per the letter of the petitioner dated 02.07.2015 and until then, the respondent No.1 is directed to retain a sum of Rs.43,12,000/- in Suspense Account.

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(vi) It is needless to mention that if the respondent No.3 is of the opinion that the petitioner is entitled to recover Rs.43,12,000/-, then he may initiate suitable proceedings against the respondent No.1 in accordance with law.

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Sd/(R. NATARAJ) JUDGE

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PMR

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List No.: 1 Sl No.: 21

Chamundeshwari Electricity v. International Asset

Case brief

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Chamundeshwari Electricity v. International Asset

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