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2022 (8) TMI 717 - HC - Insolvency and BankruptcyRefusal of connection for new electricity connection - demand of past outstanding dues against respondent no.3 - Section 53(1)(f) of the IBC - 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. 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 distribution licensee had made its claim during the resolution process as well as before the liquidator. Thus, whatever claim was allowed by the liquidator and sanctioned by the NCLT as Adjudicating Authority would be payable to the WBSEDCL from the sale proceeds in the ratio and order of priority as stipulated in Section 53. The WBSEDCL cannot, thus, have a double claim on the sale proceeds on the one hand and again from the auction purchaser merely on the strength of the expression going concern sale as used in the EOI. The claim of the WBSEDCL against the petitioners for the electricity dues left by the erstwhile owners/management of the petitioner no.1-company prior to commencement of the CIRP, is turned down - The WBSEDCL is directed to process the application of the writ petitioners for new electricity connection at the earliest and to give such electricity connection to the petitioners, without insisting upon payment of such dues within a month from compliance of all other formalities by the petitioners in that regard. Application allowed.
Issues Involved:
1. Refusal of new electricity connection by the Distribution Licensee due to past outstanding dues. 2. Interpretation of "sale as a going concern" under the Insolvency and Bankruptcy Code (IBC) and its regulations. 3. Priority of claims under Section 53 of the IBC. 4. Jurisdiction and authority of the NCLT in granting reliefs and concessions. Issue-wise Detailed Analysis: 1. Refusal of New Electricity Connection by the Distribution Licensee Due to Past Outstanding Dues The petitioner, who acquired the respondent no.3 as a going concern in a liquidation sale under the IBC, was refused a new electricity connection by the respondent no.1 (Electricity Distribution Company). The Distribution Licensee demanded past outstanding dues against respondent no.3, which were admitted during the Corporate Insolvency Resolution Process (CIRP) and liquidation stages. 2. Interpretation of "Sale as a Going Concern" Under the IBC and Its Regulations The petitioner argued that under the IBC, the sale of a corporate debtor as a going concern does not include past liabilities unless explicitly identified by the Committee of Creditors or the Liquidator. The petitioner cited various judgments, including Isha Marbles vs. Bihar State Electricity Board, to support the proposition that liabilities cannot be transferred to the buyer of a going concern unless specified. The respondent no.1 contended that the sale as a going concern on an "as is where is" basis includes all liabilities, emphasizing Regulation 32A of the Liquidation Process Regulations, 2016. 3. Priority of Claims Under Section 53 of the IBC The petitioner highlighted that Section 53 of the IBC outlines the distribution of liquidation assets and gives operational creditors, like the electricity company, a specific priority. The petitioner argued that allowing the electricity company to claim past dues from the auction purchaser would disrupt the order of priority established by Section 53 and give undue precedence to the electricity company over other creditors. 4. Jurisdiction and Authority of the NCLT in Granting Reliefs and Concessions The petitioner referred to the NCLT's order dated January 4, 2022, which granted certain reliefs and concessions to facilitate the smooth operation of the business by the successful bidder. The respondent no.1 argued that the NCLT exceeded its jurisdiction and authority by granting such reliefs and that the NCLT cannot extinguish the rights of creditors without proper legal authority. Conclusion: The court concluded that the operational creditors, including the electricity company, cannot claim priority over other creditors as outlined in Section 53 of the IBC. The court emphasized that the term "sale as a going concern" under the IBC does not imply the transfer of all pre-CIRP liabilities to the auction purchaser unless explicitly identified by the Committee of Creditors or the Liquidator. The court directed the Distribution Licensee to process the petitioner's application for a new electricity connection without insisting on the payment of past dues, thereby allowing WPA 6327 of 2022 and rejecting the claims of the WBSEDCL for past electricity dues. The court also noted that the NCLT's reliefs and concessions were within its jurisdiction to facilitate the resolution process.
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