2024 (9) TMI 1324 - AT - IBC

Liability to pay electricity dues which had arisen during the CIRP period - Failure to take into account the current position of law with respect of Section 14 of the IBC - whether the Appellant was lawfully entitled to demand the payment of current electricity dues incurred by the Corporate Debtor during the period of moratorium and whether it was entitled to disconnect the electricity connection in the event the current dues are not met? HELD THAT - The Adjudicating Authority has failed to appreciate the amendments which were brought about in Section 14 of the IBC by Act 1 of 2020. The impugned order is clearly in conflict with the legislative scheme as contemplated in Explanation appended to Section 14(1) and the provisions contained in Section 14(2-A). Section 14(1) Explanation and Section 14(2-A) was clearly introduced by way of an amendment to fill critical gaps in the Corporate Insolvency framework and that a substantive provision was introduced into IBC framework which clearly provided that the supply of goods or services, critical to protect and preserve the value of the Corporate Debtor, could always be terminated or suspended or interrupted during the period of moratorium when the dues arising from such supply during the moratorium period is not paid. Thus, the benefit of electricity supply which is enjoyed by any Corporate Debtor given by government or authority should be continued subject to the condition that there is no default of payment of current dues. Explanation to Section 14(1) and Section 14(2-A) of the IBC is clearly attracted in the facts of the present case. The protection granted by Section 14(1) is clearly subject to no default in the payment of current dues as clearly stipulated in the explanatory clause. Further, Section 14(2-A) only prohibits interruption, termination or suspension of any such supply of goods or services to the Corporate Debtor which the RP considers critical to protect and preserve the value of the Corporate Debtor and manage the operations of the Corporate Debtor as a going concern but with an exception carved out which provides that in case the Corporate Debtor has not paid dues arising from such supply during the period of moratorium. The impigned order is held to be legally unsustainable and accordingly set it aside - appeal allowed.

Issues Involved:
1. Whether the Appellant was lawfully entitled to demand the payment of current electricity dues incurred by the Corporate Debtor during the moratorium period.
2. Whether the Appellant was entitled to disconnect the electricity connection in the event the current dues are not met.

Issue-wise Detailed Analysis:

1. Entitlement to Demand Payment of Current Electricity Dues:
The Appellant contended that the Respondent is liable to pay electricity dues which had arisen during the CIRP period. The Appellant argued that Section 14 of the IBC, specifically Explanation to Section 14(1) and Section 14(2-A), mandates the continuation of benefits given by the government or any authority, subject to the condition that there is no default in payment of current dues. The Appellant emphasized that electricity supply to the Corporate Debtor does not fall under the definition of "Essential goods or services" as per Regulation 32 of the CIRP Regulations, 2016, and hence, electricity dues are considered "current dues" and must be paid during the moratorium period. The Appellant cited several judgments, including Shailesh Verma Vs Maharashtra State Electricity Distribution Company, to support their claim that electricity dues arising during the CIRP period must be paid by the Corporate Debtor.

2. Entitlement to Disconnect Electricity Connection:
The Appellant asserted that failure to pay current dues would entitle them to disconnect the electricity supply, as such action is not barred under Section 14 of IBC. The Adjudicating Authority had wrongly held that disconnection notices issued for non-payment of electricity dues were prohibited under Section 14 of the IBC. The Appellant relied on judgments such as Executive Engineer Uttar Gujarat VIJ Company Ltd. Vs Mr. Devang P. Sampat RP of M/s Kanoovi Foods Pvt. Ltd. and Uttarakhand Power Corporation Limited Vs M/s ANG Industries Ltd., which held that electricity dues must be paid during the moratorium period, and failure to do so could lead to disconnection of electricity supply.

Respondent's Arguments:
The Respondent argued that they had been diligently paying the electricity consumption charges and would be able to pay the outstanding dues after collecting maintenance amounts from residents. The Respondent contended that Section 14 of the IBC mandates uninterrupted supply of essential goods or services to the Corporate Debtor, and hence, electricity supply cannot be terminated. They also argued that electricity should be considered part of CIRP costs under CIRP Regulations 31 and 32 and should be paid at the time of distribution of CIRP costs. The Respondent emphasized that uninterrupted electricity supply was necessary to protect and preserve the value of the Corporate Debtor and that disconnection would severely affect the residents.

Tribunal's Analysis and Findings:
The Tribunal noted that the Adjudicating Authority had failed to appreciate the amendments brought about in Section 14 of the IBC by Act 1 of 2020, which introduced Explanation to Section 14(1) and Section 14(2-A) to fill critical gaps in the corporate insolvency framework. The Tribunal emphasized that the supply of goods or services critical to protect and preserve the value of the Corporate Debtor could be terminated or suspended during the moratorium period if the dues arising from such supply were not paid. The Tribunal cited the judgment in Shailesh Verma, which clarified that the protection granted by Section 14(1) is subject to no default in the payment of current dues and that Section 14(2-A) allows for the termination of supply if the Corporate Debtor fails to pay the dues.

Conclusion:
The Tribunal held that the impugned order passed in I.A. No. 82 of 2022 was legally unsustainable and set it aside. Consequently, the impugned order in I.A. No. 1432 of 2022 also fell. The Tribunal directed the Respondent to clear the outstanding electricity dues of the Appellant within 90 days from the date of the order. The Respondent was allowed to present a phased payment plan to the Appellant within 30 days, and the Appellant was to consider the reasonability of the offer and convey their decision within 15 days. If the phased offer was rejected, the timeline of 90 days for clearing the outstanding payment would hold. Both I.A. No. 82 of 2022 and I.A. No. 1432 of 2022 were disposed of on these terms, with no order as to costs.

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