Distribution Licensee Cannot Recover Minimum Charges After Two-Year Limit Under Section 56(2), Supreme Court Rules

A bench of Justices S.V.N. Bhatti and N.V. Anjaria upheld the bar on a Rs. 57.74-lakh MCGC demand raised nine years after the alleged liability arose.

The Supreme Court dismissed the civil appeal filed by Dakshinanchal Vidyut Vitran Nigam Ltd., a distribution licensee, which had demanded Rs. 57,74,164 in Minimum Consumption Guarantee Charges from its consumer for a period spanning February to September 1998. The demand was raised only on 13 February 2007 — nearly nine years later. A division bench of Justices S.V.N. Bhatti and N.V. Anjaria held that the demand was squarely barred by the two-year limitation period under Section 56(2) of the Electricity Act, 2003. The judgment, decided on 10 September 2026, is marked non-reportable and affirms the concurrent findings of the Electricity Ombudsman and the Allahabad High Court's Lucknow Bench.

How the Dispute Reached the Supreme Court

The dispute has its origins in an agreement dated 24 February 1997 between the licensee and its consumer, Respondent No. 3. The consumer had applied for an electricity connection with a 4000 KVA load. Because of supply constraints at the time, only 2000 KVA was sanctioned and released under that agreement.

By January 1998, the licensee claimed its supply position had improved. On 31 January 1998, it offered to release the remaining 2000 KVA, subject to the consumer entering into a fresh agreement. The consumer declined. On 14 September 1998, the consumer wrote to say it had no interest in the additional load.

That should have ended the matter. Instead, almost nine years later, on 13 February 2007, the licensee raised a demand of Rs. 57,74,164 on the footing that the consumer was obligated to pay MCGC for the period February to September 1998 — representing the additional 2000 KVA the licensee claims it stood ready to supply.

The consumer challenged the demand before the Consumer Grievance Redressal Forum, which returned a split verdict and afforded no effective relief. The consumer then appealed to the Electricity Ombudsman under Regulation 8.1 of the U.P. Electricity Regulatory Commission (Consumer Grievance Redressal Forum and Electricity Ombudsman) Regulations, 2007. The Ombudsman set aside the demand on 27 June 2008. The licensee then moved the Allahabad High Court at Lucknow, which dismissed its writ petition on 6 January 2012. That dismissal gave rise to Civil Appeal No. 5099 of 2013 before the Supreme Court.

What the Electricity Ombudsman and High Court Found

The Electricity Ombudsman recorded two key findings. First, the consumer never consented to the additional load; the letter of 31 January 1998 was an offer, not a concluded agreement. Second, there was nothing on record to show that the additional 2000 KVA was ever actually released to the consumer. The demand of 13 February 2007 was therefore barred by Section 56(2) of the Act, 2003, and the Ombudsman directed adjustment of any amounts already deposited against the consumer's future bills.

The High Court, while also addressing the licensee's challenge to Clause 8 of the Regulations, 2007, held that Section 42(6) of the Act, 2003 permits only a consumer to seek redressal from the Electricity Ombudsman. The High Court found Clauses 8.1 and 8.2 of the Regulations ultra vires Section 42(6) to the extent they purported to give a distribution licensee a remedy before the Ombudsman.

On limitation, the High Court reasoned that the bill of 13 February 2007 was issued after the Act, 2003 came into force, so Section 56(2) governed. A monthly bill was regularly issued under the 1997 agreement for actual consumption, but no bill for the additional 2000 KVA was ever raised alongside those monthly bills. The amount could only become “due” at a definite, ascertainable point, not as an open-ended accrual. Even under the Limitation Act, 1963, the demand was time-barred, since at best three years applied. The High Court also noted that under Section 5-A of the U.P. Government Electrical Undertaking (Dues Recovery) Act, 1958, which prescribed a six-year limitation period, the 2007 demand for a 1998 liability was still out of time.

The Supreme Court's Reasoning on Section 56(2)

Before the Supreme Court, counsel for the licensee did not seriously press the challenge to Regulation 8 of the 2007 Regulations. The Court noted that certain ancillary regulatory arguments available to the licensee were effectively foreclosed by the Court's own earlier decision in K.C. Ninan v. Kerala State Electricity Board & Ors. (2023 INSC 560), and counsel fairly acknowledged this.

The Court then turned to the core issue: whether the demand of 13 February 2007 conformed to the limitation period under Section 56(2) of the Act, 2003. It applied the principles laid down in Assistant Engineer (D1), Ajmer Vidyut Vitran Nigam Limited and Another v. Rahamatullah Khan Alias Rahamjulla (2020) 4 SCC 650.

From that precedent, the Court extracted the governing propositions. Electricity charges become “first due” only after the licensee issues a bill quantifying the amount, even though the underlying liability arises on consumption. The two-year clock under Section 56(2) runs from the date charges became first due. Crucially, the limitation period restricts the licensee's right to disconnect supply for non-payment — it does not extinguish other modes of recovery outright. However, where no bill was raised within time and the sum was never shown continuously as recoverable arrears in subsequent bills, the licensee cannot invoke disconnection as a lever.

Applying these principles, the Court found that no bill for the additional 2000 KVA had been raised at or around the time the alleged liability accrued in 1998. The 2007 demand was the first such bill. The sum had not been shown continuously as recoverable arrears in the intervening monthly bills. The demand was therefore outside the two-year window prescribed by Section 56(2).

Consumer Liability and the Consent Requirement

Beyond limitation, the Court also accepted the factual finding that the consumer's liability for MCGC on the additional load could not arise in the first place. The agreement of 24 February 1997 contemplated the supplier arranging an additional 2000 KVA within six months. That did not happen within the stipulated period. After about nine months, on 31 January 1998, the licensee claimed the load was available and asked the consumer to convey consent for its release.

The consumer did not consent. The licensee also did not demonstrate that the additional 2000 KVA was ever physically released to the consumer. The High Court had held that a consumer's liability arises only when the agreed quantum of electricity is actually released, not before. The Supreme Court did not disturb this finding.

The combined effect is that the licensee failed on two independent grounds: the demand was barred by limitation under Section 56(2), and the consumer had never accepted, nor received, the additional load that was said to attract the charges.

Outcome

The Supreme Court dismissed Civil Appeal No. 5099 of 2013 in its entirety. The order of the Allahabad High Court dated 6 January 2012, dismissing the writ petition, stands. All pending applications in the matter were directed to be disposed of accordingly. The demand of Rs. 57,74,164 raised by the licensee on 13 February 2007 remains set aside.