2025 (1) TMI 634 - AT - IBC

Liability to pay the pre-Corporate Insolvency Resolution Process (CIRP) electricity dues of the Corporate Debtor - waterfall mecahnism - payment of dues in accordance with Section 53 of the IB Code - HELD THAT - It is relevant to notice that Judgment of the Hon ble Supreme Court in K.C. Ninan 2023 (5) TMI 1251 - SUPREME COURT was not in reference to liquidation proceeding where electricity authority has filed any claim. The above Judgment thus is not attracted in the facts of the present case and does not help the Appellant in any manner. The Judgment of the Hon ble Supreme Court in the matter of Paschimanchal Vidyut Virtan Nigam Limited Vs. Raman Ispat Private Limited Ors. 2023 (7) TMI 831 - SUPREME COURT and in the matter of Tata Power Western Odisha Distribution Ltd. Vs. Jagannath Sponge Private Limited 2023 (9) TMI 1071 - SC ORDER fully covers the issue - It was held in the said case that 'the issue of corporate debtor s dues falls within the fold of the phrase arising out of or in relation to insolvency resolution under section 60(5)(c) of the Code.' Conclusion - The pre-CIRP dues are to be addressed through the liquidation process under the IBC, not through imposing liability on auction purchasers. No error has been committed by the Adjudicating Authority - Appeal dismissed.

1. ISSUES PRESENTED and CONSIDERED

The core legal issues considered in this judgment are:

Whether the Successful Auction Purchaser (Respondent No. 1) is liable to pay the pre-Corporate Insolvency Resolution Process (CIRP) electricity dues of the Corporate Debtor before the electricity connection is restored by the Appellant.
Whether the terms of the auction, conducted on an "as is where is, as is what is, and whatever there is" basis, impose liability on the Successful Auction Purchaser for outstanding electricity dues.
Whether the Appellant can insist on the payment of past electricity dues by the Successful Auction Purchaser before energizing the electricity connection, given the liquidation proceedings and the distribution of assets under Section 53 of the Insolvency and Bankruptcy Code (IBC).
Whether the adjudicating authority correctly applied the legal principles and precedents in directing the Appellant to provide the electricity connection without insisting on the payment of past dues.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Liability of the Successful Auction Purchaser for Pre-CIRP Electricity Dues

Relevant Legal Framework and Precedents: The legal framework involves the Insolvency and Bankruptcy Code, 2016, particularly Section 53, which outlines the distribution of assets during liquidation. Precedents include judgments from the Supreme Court and the National Company Law Appellate Tribunal (NCLAT) on similar issues, such as "Telangana State Southern Power Distribution Company Ltd. vs. Srigda Beverages" and "Eastern Power Distribution Company of Andhra Pradesh Ltd. vs. Maithan Alloys Limited."
Court's Interpretation and Reasoning: The court reasoned that the Appellant's claim for electricity dues was admitted in the liquidation process and should be treated according to the waterfall mechanism under Section 53 of the IBC. The court emphasized that the liability for past dues does not transfer to the Successful Auction Purchaser in the context of insolvency proceedings.
Key Evidence and Findings: The court noted that the Appellant's claim was admitted for Rs. 7,66,95,203/- in the liquidation process, and the distribution of assets was conducted as per Section 53, which did not allocate any amount to the Appellant.
Application of Law to Facts: The court applied the law by determining that the Appellant's dues were operational debts to be settled through the liquidation process, not by imposing liability on the Successful Auction Purchaser.
Treatment of Competing Arguments: The court considered arguments from both parties, including the Appellant's reliance on auction terms and the Respondent's reliance on the IBC framework. The court found the Respondent's arguments more aligned with the legal framework.
Conclusions: The court concluded that the Successful Auction Purchaser is not liable for the pre-CIRP electricity dues and that the Appellant should seek payment through the liquidation process.

Issue 2: Auction Terms and Liability for Outstanding Dues

Relevant Legal Framework and Precedents: The terms of the auction notice and relevant case law, including "K.C. Ninan vs. Kerala State Electricity Board," were considered.
Court's Interpretation and Reasoning: The court interpreted the auction terms within the context of insolvency proceedings, noting that the sale was conducted under the IBC, which prioritizes claims through the liquidation process.
Key Evidence and Findings: Evidence included the auction notice terms and the liquidation process details, which showed that the Appellant's claim was part of the admitted claims in liquidation.
Application of Law to Facts: The court applied the law by emphasizing that the auction terms do not override the statutory framework of the IBC.
Treatment of Competing Arguments: The court addressed the Appellant's argument that auction terms imposed liability on the purchaser but found that the IBC framework governs the resolution of such claims.
Conclusions: The court concluded that the auction terms do not impose liability for past dues on the Successful Auction Purchaser within the context of the IBC.

3. SIGNIFICANT HOLDINGS

Preserve Verbatim Quotes of Crucial Legal Reasoning: "The clean slate principle would stand negated if the successful resolution applicant is asked to pay the arrears payable by the corporate debtor for the grant of an electricity connection in her/his name."
Core Principles Established: The judgment reinforces the principle that pre-CIRP dues are to be addressed through the liquidation process under the IBC, not through imposing liability on auction purchasers.
Final Determinations on Each Issue: The court dismissed the appeal, upholding the adjudicating authority's order to provide electricity connection without requiring the payment of past dues by the Successful Auction Purchaser.

This judgment provides clarity on the treatment of operational debts, such as electricity dues, in the context of insolvency proceedings, emphasizing the role of the liquidation process and the waterfall mechanism under the IBC. It also delineates the limitations of auction terms in overriding statutory frameworks.

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