2021 (8) TMI 292 - AT - Insolvency and Bankruptcy

Supply of essential services during moratorium period - before CIRP started there were no outstanding bills of electricity - HELD THAT - Under Section 14(2) the supply of essential goods or services to the Corporate Debtor should not be terminated or suspended or interrupted during moratorium period. However, if supply was used to keep Corporate Debtor a going concern, the service of electricity cannot be terminated provided the dues arising from such supply during Moratorium are paid. If they are not paid Section 14 (2-A) will not protect. Reading the Regulation 32, it is clear that the words essential goods or services as used in Section 14(2) have been given a particular meaning to which moratorium applies. The illustration under Regulation 32 makes the position clear. Use of electricity by the Corporate Debtor in CIRP would be essential supply to the extent it is not a direct input to the output produced or supplied by the Corporate Debtor. Like using of water to generate hydro-electricity is not essential supply similarly, use of electricity in the present matter for running the printing business of the Corporate Debtor cannot get protection as essential supply. Thus there are no fault with the impugned order. The Learned Counsel for the Appellant submits that even if the Corporate Debtor goes into liquidation, the machines to be sold would require to be demonstrated as functioning and this cannot be done without electricity. It is also stated that whatever are the bills of the Respondent with regard to electricity would be paid if the orders of liquidation gets passed and money is realised. Learned Counsel submits for Appellant that the electricity dues will be paid on priority. Considering the provisions as discussed above, we give liberty to the Appellant to specifically put on record particulars relating to the electricity supply required which would not be direct input to the output produced by the Corporate Debtor. With such particulars Appellant may move Adjudicating Authority for relief - the impugned order need not be interfered - appeal disposed off.

Summary

Issues:
1. Disconnection of electricity supply during Corporate Insolvency Resolution Process (CIRP) and applicability of Section 14 of the Insolvency and Bankruptcy Code, 2016.
2. Lack of funds in the Corporate Debtor's corpus and the role of the Financial Creditor during CIRP.
3. Incurred electricity dues during CIRP and the protection under Section 14(2) and (2-A) of the IBC.
4. Interpretation of essential goods or services under Regulation 32 of the Insolvency Resolution Process for Corporate Persons Regulations, 2016.

Analysis:
1. The appeal arose from an order by the Adjudicating Authority regarding outstanding electricity dues during CIRP. The Appellant argued that electricity supply to the Corporate Debtor was cut off during CIRP, violating Section 14 of the IBC and Regulation 32 of the Insolvency Resolution Process regulations.

2. The Appellant highlighted the lack of funds in the Corporate Debtor's corpus and the non-cooperation of the Financial Creditor, SIDBI, during CIRP, causing difficulties for the Resolution Professional in conducting the process and raising interim finance.

3. The Appellant incurred electricity dues amounting to ?7,18,647 during CIRP to maintain the Corporate Debtor as a going concern. The Appellant acknowledged the necessity to pay the dues for protection under Section 14(2) and (2-A) of the IBC, emphasizing the relevance of the incurred costs to sustain the Corporate Debtor's operations.

4. The Tribunal analyzed Section 14(2) and (2-A) in conjunction with Regulation 32, defining essential goods or services under the IBC. It clarified that electricity usage by the Corporate Debtor in CIRP would only be considered an essential supply if not a direct input to the output produced or supplied by the Corporate Debtor, as illustrated in the regulation.

5. The Tribunal upheld the impugned order, emphasizing that electricity dues would be paid on priority even if the Corporate Debtor entered liquidation. It granted the Appellant liberty to provide specific details on electricity supply required not directly linked to the Corporate Debtor's output, allowing a potential modification of the order by the Adjudicating Authority based on these particulars.

6. In conclusion, the appeal was disposed of with no costs incurred, maintaining the impugned order while providing the Appellant with an opportunity to seek relief concerning electricity supply not directly impacting the Corporate Debtor's output.