2018 (2) TMI 1836 - AT - Insolvency and Bankruptcy

Insolvency Resolution Process for Corporate Persons - whether the order of Moratorium will cover the current charges payable by the Corporate Debtor for supply of water, electricity etc. or not? - HELD THAT - From sub-section (2) of Section 14 of the I&B Code , it is clear that supply of essential goods or services to the Corporate Debtor , as may be specified by the Insolvency and Bankruptcy Board of India , cannot be terminated or suspended or interrupted during the period of Moratorium . Regulation 31 relates to Insolvency Resolution Process Costs whereas Regulation 32 relates to Essential Supplies . As per Regulation 31, the amounts due to suppliers of essential goods and services under Regulation 32 are to be included in the Insolvency Resolution Process Costs . It is clear that the amount as is due towards supply of essential goods and services, including electricity, water, telecommunication services and information technology services, if they are not a direct input to the output produced or supplied by the Corporate Debtor , require to be included towards Insolvency Resolution Process Costs as per sub-section 13(e) of Section 5. From sub-section (2) of Section 14 of the I&B Code , it is also clear that essential goods or services, including electricity, water, telecommunication services and information technology services, if they are not a direct input to the output produced or supplied by the Corporate Debtor , cannot be terminated or suspended or interrupted during the Moratorium period. From the provisions of I&B Code and Regulations, we find that no prohibition has been made or bar imposed towards payment of current charges of essential services. Such payment is not covered by the order of Moratorium . Regulation 31 cannot override the substantive provisions of Section 14; therefore, if any cost is incurred towards supply of the essential services during the period of Moratorium , it may be accounted towards Insolvency Resolution Process Costs , but law does not stipulate that the suppliers of essential goods including, the electricity or water to be supplied free of cost, till completion of the period of Moratorium . Payment if made towards essential goods to ensure that the Company remains on-going as made in the present case for the month of December, 2017, such amount can be accounted towards Insolvency Resolution Process Costs , but it does not mean that supply of essential goods such as electricity to be supplied free of cost and the Corporate Debtor is not liable to pay the amount till the completion of the period of Moratorium . If the Corporate Debtor has no fund even to pay for supply of essential goods and services, in such case, the Resolution Professional cannot keep the Company on-going just to put additional cost towards supply of electricity, water etc. In case the Corporate Debtor (Company) is non-functional due to paucity of fund, and has become sick the question of keeping it on going does not arise. In absence of specific prohibition for payment of current charges and in view of the fact that the Corporate Debtor has already paid the current electricity charges for the month of December, 2017, we pass the following orders - (i) The Resolution Professional will pay the outstanding current charges for supply of electricity for the month of September, 2017 and January, 2017 to the Appellant by 28th February, 2018. The current electricity charges for the month of October, 2017 and February, 2017 be paid by 16th March, 2018. The current charges towards the electricity for the month of November, 2017 and March, 2018 be paid by 15th April, 2018. (ii) The Appellant will not levy any late payment surcharges for delayed payment of current charges, nor disconnect the supply of electricity in view of sub-section (2) of Section 14 of the I&B Code .

Summary

Issues: Interpretation of 'Moratorium' order regarding current charges for essential services like water and electricity payable by the Corporate Debtor.

Analysis:
1. Interpretation of Moratorium Order: The main issue in this case was the interpretation of the 'Moratorium' order concerning the current charges payable by the Corporate Debtor for essential services like water and electricity. The Appellant argued that the 'Moratorium' order should only cover the amount due for services provided before the 'Moratorium' was imposed, not the current charges. On the other hand, the Resolution Professional contended that as per Regulations 31 and 32 of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016, the Appellant is obligated to supply essential goods and services, including electricity, even during the 'Moratorium' period.

2. Legal Provisions: The Tribunal examined Section 14 of the Insolvency and Bankruptcy Code, 2016, which deals with 'Moratorium.' Sub-section (2) of Section 14 specifically states that the supply of essential goods or services to the Corporate Debtor, as specified, cannot be terminated, suspended, or interrupted during the 'Moratorium' period. Additionally, Regulations 31 and 32 outline that amounts due for essential goods and services, including electricity and water supplies, are to be included in the 'Insolvency Resolution Process Costs.'

3. Decision: The Tribunal clarified that while the 'Moratorium' order protects the supply of essential services, it does not exempt the Corporate Debtor from paying current charges for such services. The Tribunal emphasized that Regulation 31 cannot override the substantive provisions of Section 14. Therefore, any costs incurred for essential services during the 'Moratorium' period may be considered as 'Insolvency Resolution Process Costs,' but it does not mean that the services should be provided free of cost. The Corporate Debtor remains liable to pay for essential services to ensure the company's continuity.

4. Final Orders: In light of the above analysis, the Tribunal issued specific directions for the payment of outstanding current charges for electricity by the Resolution Professional to the Appellant by specified dates. The Appellant was prohibited from levying late payment surcharges or disconnecting the electricity supply due to delayed payments, in accordance with Section 14(2) of the Insolvency and Bankruptcy Code. The appeal was disposed of with these observations and directions, and no costs were awarded in the case.