2017 (10) TMI 568 - Tri - Insolvency and Bankruptcy

Insolvency and Bankruptcy Code invoked to prohibit the supplier from terminating or suspending services - Held that - Electricity, water and telecommunication services and Information Technology service are to be considered as essential as long as these services are not a requirement to the output produced or supplied by the Corporate Debtor. Under this regulation, an illustration also been given saying that water is to be considered as essential service as long as it is used for drinking purpose and sanitization purpose but not for generating electricity. If the same electricity is used as input for manufacturing purpose making huge bill of lakhs of rupees to get output from that industry, then to our understanding, supply of electricity is used as input for manufacturing purpose to get output from the factory and it obviously to make profits. Essential service is a service for survival of human kind, but not for making business and earn profits without making payment to the services used. When company is using it for making profit, then the company owes to make payment to the services/goods utilized in manufacturing purpose. Since it is not the defense of the debtor company that this electricity is used for lighting purpose, and admittedly using for running manufacturing business, those service will not fall within the ambit of Section 14(2) of moratorium. Every month, since this company has been consuming electricity for almost one crore of rupees, such supply will not be treated as supply for meeting essential requirements of the company. Therefore, this Bench hereby clarifies that the electricity supplying to the debtor company will not fall within essential supplies classified in Regulation 32 of IBBI (CIRP) Regulations, therefore, section 14(2) of Insolvency and Bankruptcy Code shall not be invoked to prohibit the supplier from terminating or suspending services

Summary

Issues:
1. Failure of a corporate debtor to pay outstanding electricity bills to a public sector undertaking company.
2. Interpretation of whether the supply of electricity for manufacturing activities constitutes an essential service under Regulation 32 of IBBI (CIRP) Regulations, 2016.

Analysis:
1. The petitioner, a public sector undertaking company supplying electricity to the corporate debtor, filed a Miscellaneous Application due to the debtor's failure to pay outstanding electricity bills. Despite issuing multiple notices for payment, the debtor only made a partial payment of the dues. The total outstanding arrears amounted to ?2,81,21,060, reduced to ?2,38,00,650 after the partial payment. The petitioner argued that the electricity supply was not for essential services but for manufacturing purposes, not covered under Regulation 32 of CRP Regulations. The petitioner sought clarification that supplying electricity for manufacturing is not an essential service.

2. The corporate debtor contended that due to the moratorium in force under Section 14 of the Insolvency and Bankruptcy Code, any demand for payment of electricity bills was prohibited. The debtor claimed that electricity is an essential service under Regulation 32 of IBC, and discontinuing supply would violate the Admission Order. The debtor argued that electricity was not a direct input as they were involved in manufacturing tubes and motor vehicle components, not generating hydel energy.

3. The petitioner asserted that as electricity supply was included in IRP costs under Regulation 31 of IBBI (CIRP) Regulations, it should be treated as an essential service. The debtor highlighted its financial difficulties, operating at an EBITDA loss and facing cash crunch. The debtor had made partial payments towards electricity dues but was unable to pay other creditors and statutory dues. The debtor expected to receive Industrial Promotion Subsidy to clear the dues.

4. The Tribunal analyzed Regulation 32 of IBBI (CIRP) Regulations, which defines essential goods and services under Section 14(2) of the Code. The Regulation includes electricity as essential unless it is a direct input to the output produced by the corporate debtor. The Tribunal clarified that electricity supplied for manufacturing purposes to earn profits does not fall under essential services. Therefore, Section 14(2) of the Insolvency and Bankruptcy Code does not prohibit the supplier from terminating or suspending services for non-payment. The Tribunal disposed of the Miscellaneous Application accordingly.