SARFAESI Act : Auction Purchasers Must Clear Outstanding Electricity Dues
Allahabad Court Upholds "Buyer Beware" Principle; SARFAESI Act Properties Require Payment of Past Electricity Arrears
News Report:
In a judgment delivered on September 16, 2025, the Allahabad High Court, presided by Justices Arindam Sinha and Avnish Saxena, has reiterated the obligations of auction purchasers under the SARFAESI Act to clear outstanding electricity dues attached to the purchased properties before obtaining a new electricity connection. The judgment came in the case of Amir Ahmad v. State of U.P., emphasizing the importance of the "buyer beware" principle in property transactions conducted through auctions.
The petitioner, Amir Ahmad, had moved the court seeking relief after being denied a new electricity connection for a property purchased through an auction conducted under the SARFAESI Act. Ahmad contended that the property was sold free from encumbrances, as evidenced by a sale certificate dated April 24, 2024, and argued that the supply company had no grounds to demand payment of arrear dues attached to the premises.
However, the court upheld the supply company's reliance on Clause 4.3 (f) (i) and (viii) of the U.P. Electricity Supply Code, 2005, which mandates both the seller and purchaser to be jointly and severally liable for outstanding electricity dues. According to this clause, the electricity supply company can refuse to process applications for new connections until these dues are settled, a provision confirmed by the Supreme Court in the case of K.C. Ninan v. Kerala State Electricity Board (2023).
Justice Sinha noted that the property in question was sold on an "as-is-where-is" basis, a common practice in auction sales under the SARFAESI Act. This implies that the buyer, in this case Amir Ahmad, is responsible for investigating any existing liabilities, such as unpaid electricity dues, linked to the property. The court emphasized that the auction purchaser's argument that the authorized officer had not consumed electricity does not exempt him from this obligation. The judgment referenced the Supreme Court's decision in K.C. Ninan, which supports the practice of recovering electricity dues from subsequent property transferees to maintain the financial health of public utilities and ensure continued investment in infrastructure.
The judgment serves as a reminder to potential buyers of auction properties to conduct thorough due diligence regarding any existing liabilities, including electricity arrears, before finalizing their purchase. Failure to address these liabilities can result in complications when attempting to secure necessary utilities and services, reinforcing the buyer's responsibility to be aware of and manage any encumbrances associated with the property.
The court's decision underscores the legal framework that governs auction sales under the SARFAESI Act and the Electricity Supply Code, ensuring that public utilities can recover outstanding dues vital for their operations. This ruling not only impacts the financial health of electricity providers but also protects the interests of the wider community by enabling continued investment in essential services.
With the disposal of the writ petition, Amir Ahmad is required to comply with the provisions of Clause 4.3 to secure an electricity connection for the property he has acquired. The judgment highlights the essential role of legal compliance in property transactions and the need for purchasers to be vigilant about potential encumbrances that may not be explicitly evident at the time of purchase.
Amir Ahmad v. State of U.P., (Allahabad)(DB) : Law Finder Doc Id # 2780232
