Electricity Act: Supreme Court Rejects 2007 Demand For 1998 Electricity Dues, Explains Section 56(2) Limitation

The Supreme Court has held that electricity charges become “first due” when the licensee issues a bill quantifying the amount payable by the consumer. It clarified that where no bill is issued during the relevant billing cycles and the amount is not continuously shown as recoverable as arrears, a demand raised years later may be barred by the two-year limitation under Section 56(2) of the Electricity Act, 2003.

Section 56(2) of the Electricity Act, 2003 stops electricity companies from cutting off your power supply for unpaid bills that are older than two years, unless those dues were shown continuously as pending arrears in your regular bills.

A Bench of Justices S V Bhatti and N V Anjaria made the observation while dismissing an appeal filed by Dakschimanchal Vidyut Vitran Nigam Ltd against an order setting aside a demand for minimum consumption guarantee charges (MCGC).

Court held that a demand for MCGC charges pertaining to 1998, which was raised for the first time in 2007 without any earlier bill or continuous treatment of the amount as arrears, could not be sustained.

Why did the Supreme Court reject the 2007 electricity demand?

Court found that the consumer had neither consented to nor accepted the additional 2000 KVA electricity load offered by the distribution licensee. It also noted that the demand raised in 2007 for the period in 1998 was barred by the limitation prescribed under Section 56(2) of the Electricity Act, 2003.

The appeal was filed against a January 6, 2012 order of the Allahabad High Court's Lucknow Bench.

Before the high court, the appellant had challenged a June 27, 2008 order passed by the Electricity Ombudsman. It had also sought, through a writ of certiorari, the quashing of Clause 8 of the U.P. Electricity Regulatory Commission (Consumer Grievance Redressal Forum and Electricity Ombudsman) Regulations, 2007, as being ultra vires Sections 42(5) and 42(6) of the Electricity Act, 2003.

What was the dispute over the additional 2000 KVA load?

As per the facts of the case, Respondent No. 3 had applied for an electricity connection with a load of 4000 KVA. However, due to limitations at the relevant time, the appellant agreed to sanction and release only 2000 KVA of load.

An agreement to this effect was entered into between the appellant and Respondent No. 3 on February 24, 1997.

The appellant later claimed that, owing to improved power generation, it became capable of supplying the balance 2000 KVA of power originally applied for by the consumer.

On January 31, 1998, the appellant offered to increase the contract load by another 2000 KVA, subject to Respondent No. 3 entering into an agreement with it.

However, in a letter dated September 14, 1998, Respondent No. 3 expressed its lack of interest in accepting the additional supply load offered by the appellant.

Despite this, on February 13, 2007, the appellant raised a demand of Rs 57,74,164 towards MCGC for the period from February 1998 to September 1998, in respect of the additional 2000 KVA.

The appellant proceeded on the assumption that although it was ready to supply the additional 2000 KVA, Respondent No. 3 had not been prepared to avail the additional load. It therefore treated the contracted capacity for the relevant period as 4000 KVA and claimed that the consumer was liable to pay MCGC.

Electricity Ombudsman had already set aside the demand

The Electricity Ombudsman set aside the 2007 demand, primarily finding that Respondent No. 3 had not consented to the additional load offered by the appellant in 1998.

It also found that there was nothing on record to show that the appellant had actually released the additional 2000 KVA to the consumer.

The Ombudsman further held that the demand was barred by the limitation prescribed under Section 56(2) of the Electricity Act, 2003.

It consequently directed that the amounts deposited pursuant to the demand be adjusted against the consumer's future electricity bills.

What does Section 56(2) say about old electricity dues?

The high court, while dismissing the appellant's challenge to the Ombudsman's order, held that the demand raised for the first time in 2007 for an event relating to February 1998 to September 1998 was barred by limitation.

The high court observed that the consumer's liability arises only when the agreed quantum of electricity is released to him, and not before.

It also noted that the appellant had not contended that the consumer had conveyed any consent or acceptance for the additional load, or that the additional 2000 KVA had actually been released to him.

The Supreme Court, while examining the legality of the 2007 demand and its compliance with the two-year limitation period under Section 56(2), relied on its earlier judgment in Assistant Engineer (D1), Ajmer Vidyut Vitran Nigam Limited and Another v. Rahamatullah Khan Alias Rahamjulla (2023).

In that case, the Supreme Court had held that although the liability to pay electricity charges arises from consumption of electricity, the obligation to pay arises when the licensee issues a bill quantifying the charges.

Thus, electricity charges become “first due” only after the bill is issued to the consumer.

When does the two-year limitation period begin?

The Supreme Court had earlier explained that the two-year limitation period under Section 56(2) begins from the date on which the electricity charges become “first due”.

Section 56(1) gives a licensee the statutory right to disconnect electricity supply if a consumer neglects to pay electricity dues. However, this right is subject to the two-year limitation prescribed under Section 56(2).

The provision restricts the licensee's right to disconnect electricity supply for non-payment of dues after two years from the date when the amount first became due, unless the amount has been continuously shown as recoverable as arrears in bills raised for the past period.

Court had observed that allowing a licensee to disconnect electricity supply after the expiry of two years from when the amount first became due would defeat the object of Section 56(2).

At the same time, Court had clarified that Section 56(2) does not completely prevent a licensee from raising a supplementary demand after the expiry of the two-year period.

The provision only restricts the licensee's right to disconnect electricity supply for non-payment after the limitation period has expired. It does not bar other modes of recovery that may be available to the licensee for recovering a supplementary demand.

Supreme Court dismisses appeal against MCGC demand being set aside

Applying the earlier legal position to the present case, the Supreme Court held that the appellant was not entitled to raise the 2007 demand for MCGC relating to 1998.

Court therefore dismissed the civil appeal and upheld the view taken by the authorities below.

Case Title: Dakschimanchal Vidyut Vitran Nigam Ltd Vs Vidut Lokpal, Uttar Pradesh And Others

Bench: Justices S V N Bhatti and N V Anjaria

Date of Judgment: September 10, 2026