2022 (8) TMI 716 - HC - Insolvency and Bankruptcy

Refusal to grant new electricity connection to the petitioners in respect of the factory of the petitioner no.1- Company, unless the alleged outstanding dues left by the erstwhile owner, to the tune of above Rs.3.5 crore, was deposited by the petitioner - HELD THAT - Regulation 32-A of the Liquidation Process Regulations of 2016 clearly specifies that liabilities for the purpose of going concern sales in liquidation are only those liabilities which have been identified and earmarked for the going concern sale by the committee of creditors, if not, by the liquidator - The said provision, read with Regulation 39-C of the Corporate Persons Regulations, 2016, is unambiguous and leaves no scope of construing that all the liabilities, including pre-CIRP liabilities, are transferred to the successful Resolution Applicant in a going concern sale. It is well-settled that the debts of the power distribution licensee do not operate as charge on the assets of the corporate debtor. Both sale of the corporate debtor and the business(es) of the corporate debtor as a going concern, as envisaged in Regulation 32, Clauses (e) and (f) respectively, do not contemplate automatic transfer of all pre-CIRP liabilities of the corporate debtor to the auction purchaser - the Regulations framed under the authority conferred by the IBC cannot be construed to override the provisions of the Code itself. Hence, no interpretation contrary to Section 53 of the IBC which, again, is preceded by a non obstante clause, can be attributed to the expression going concern sale , as contemplated in Rule 32 of the Liquidation Process Regulations, 2016. In the present case, the claim of the WBSEDCL of outstanding dues from the petitioners as a pre-condition for grant of electricity cannot be sustained. The WBSEDCL shall give new electricity connection without insisting upon payment of such dues by the petitioners, subject to compliance of all other formalities by the petitioners in connection with their application for new electricity connection at the earliest, latest within a month from compliance of such formalities by the petitioners. Later Judgement At this juncture after delivery of judgment learned counsel for the respondent-Distribution licensee makes a prayer for stay of operation of the above judgment and order - However, since a month has been given for the WBSEDCL to reconnect electricity, such further stay is deemed unnecessary and hence refused.

Summary

Issues Involved:
1. Refusal to grant new electricity connection due to outstanding dues of the erstwhile owner.
2. Applicability of the Insolvency and Bankruptcy Code (IBC) over the Electricity Act, 2003.
3. Interpretation of "slump sale" and "going concern" in the context of IBC liquidation.
4. Priority of claims under Section 53 of the IBC.
5. Liability of the purchaser for the dues of the erstwhile owner.

Detailed Analysis:

1. Refusal to Grant New Electricity Connection:
The petitioners challenged the order dated March 16, 2019, by the Chief Engineer, WBSEDCL, which refused to grant a new electricity connection unless the petitioners paid the outstanding dues of the erstwhile owner amounting to over Rs. 3.5 crore. The petitioners argued that their bid for the assets of Barjora Steel Re-Rolling Mills Private Limited (in liquidation) was accepted, and they applied for a fresh electricity connection for the factory premises.

2. Applicability of IBC Over the Electricity Act, 2003:
The petitioners contended that under the IBC, a successful resolution applicant cannot be faced with undecided claims after the resolution plan is accepted. They cited the Supreme Court judgment in *Committee of Creditors of Essar Steel India Limited Vs. Satish Kumar Gupta*, asserting that the successful resolution applicant starts on a "fresh slate." They argued that Section 238 of the IBC, a non obstante clause, overrides any demand made by WBSEDCL based on the Electricity Act, 2003.

3. Interpretation of "Slump Sale" and "Going Concern":
The petitioners argued that the sale was a slump sale under the IBC, which does not transfer the liabilities of the corporate debtor to the purchaser. The WBSEDCL, however, contended that the sale was on an "as is where is" basis, including statutory dues. They referred to Clause 3.4.2 of Regulation 55 of the WBERC and Clause 2.5 of the WBSEDCL Procedure-B, which require clearing of dues if a nexus with the erstwhile owner is established.

4. Priority of Claims Under Section 53 of the IBC:
The court examined Section 53 of the IBC, which outlines the order of priority for distribution of liquidation assets. The sixth category, "any remaining debts and dues," includes operational creditors like WBSEDCL. The court held that the pecking order in Section 53 cannot be overridden, and operational creditors cannot claim priority over preceding categories.

5. Liability of the Purchaser for the Dues of the Erstwhile Owner:
The court found that the sale of the corporate debtor or its business as a going concern does not automatically transfer pre-CIRP liabilities to the auction purchaser. The IBC and its associated regulations do not contemplate such a transfer. The WBSEDCL's claim for outstanding dues as a precondition for granting electricity was not sustained.

Conclusion:
The court allowed the writ petition, setting aside the order of rejection by WBSEDCL. It directed WBSEDCL to provide a new electricity connection without insisting on payment of the outstanding dues, subject to compliance with other formalities by the petitioners. The court also refused a stay on its judgment, deeming it unnecessary.

Order:
- The order of rejection dated March 16, 2019, is set aside.
- WBSEDCL to provide a new electricity connection without demanding payment of the outstanding dues.
- No order as to costs.
- Urgent certified copies of the order to be supplied upon satisfaction of requisite formalities.

Later:
The court refused a stay on the operation of the judgment, considering the one-month period given for WBSEDCL to reconnect electricity.

(Sabyasachi Bhattacharyya, J.)