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2023 (3) TMI 898 - HC - Companies LawRecovery of electricity dues of the Company - personal liability of the Directors of the Defaulter Company/Corporate debtor which went into insolvency - Company under moratorium period (undergoing CIRP) - It was urged that once the Company went into insolvency the outstanding electricity dues towards the defaulter company being Corporate debtor could not have been recovered from its Directors. Whether the Director of the Company who is claimed to be the personal guarantor in the matter of payment of electricity dues of the Company would be able to sustain the challenge to the demand of dues of electricity from the personal assets of the Directors in view of the Insolvency Proceedings concluded in relation to the defaulter company namely the Corporate debtor? HELD THAT - In STATE BANK OF INDIA VERSUS V. RAMAKRISHNAN AND ANR. 2018 (8) TMI 837 - SUPREME COURT the controversy revolved around Section 14 of the Insolvency and Bankruptcy Code 2016 which provides for moratorium for the limited period mentioned in the Code. The issue before the Apex Court was as to whether on admission of insolvency petition the moratorium under Section 14 of the Code would apply to a personal guarantor of a Corporate debtor. While answering the said question the Apex Court had considered different provisions of the Code and the effect of enforcement of Section 2(e) w.e.f 23.11.2017 by the Amendment Act 2018. It was noted that under Part II of the Code which deals with insolvency resolution and liquidation for Corporate persons a financial creditor or a Corporate debtor may make an application to initiate the insolvency resolution process. Once initiated the adjudicating authority after admission of such application shall by order declare a moratorium for the purposes referred to in Section 14 (as per Section 13 of the Code). It was thus held therein that the object of the Code is not to allow personal guarantors such as Directors who are in management of the companies to escape from an independent and co-existent liability to pay off the entire outstanding debt. The decision in Sanjeev Shriya vs S.B.I 2017 (9) TMI 1638 - ALLAHABAD HIGH COURT wherein moratorium was applied to enforcement of guarantee against personal guarantor to the debt has been overruled. Thus it is clear that approval of a resolution plan does not ipso facto absolve the surety/guarantor of his or her liability which arises out of an independent contract of guarantee. To what extent the liability of a guarantor can be pressed into service would depend on the terms of the guarantee/contract itself - the main contention of the learned counsel for the petitioner to challenge the recovery on the ground that approval of the resolution plan in the insolvency proceeding in relation to the defaulter company namely M/s Trimurti Concast Pvt ltd (Corporate debtor) would ipso facto discharge both the Directors of the defaulter Company one of whom is the petitioner is liable to be turned down. As to the issue of applicability of Clause 4.3(f)(v) of the Electricity Supply Code 2005 the arguments with regard to validity of the same or the said provision being ultra vires to the Electricity Act 2003 made in rejoinder half-heartedly cannot be entertained in as much as no foundation has been laid in that regard in the writ petition. Thus it is clarified that the legal issue with regard to the liability of the personal guarantor of the Corporate debtor whose liability is co-extensive with the principal debtor i.e the Corporate debtor has been answered by us taking into consideration the law laid down by the Apex Court - the challenge to the demand notice for dues of electricity issued jointly in the name of the Directors of the Corporate debtor the defaulter company which went into insolvency cannot be sustained on the ground that in view of the acceptance of the resolution plan under Section 31 of the Code all liabilities of the Directors who may be the guarantor stood automatically discharged/extinguished. Petition dismissed.
Issues Involved:
1. Validity of the demand notice under Section 3 read with Section 5 of the U.P. Government Electrical Undertakings (Dues Recovery) Act, 1958. 2. Impact of the Insolvency and Bankruptcy Code, 2016 (IBC) on the recovery of dues from the directors of a corporate debtor. 3. Personal liability of the directors for the electricity dues of the corporate debtor. 4. Applicability and validity of Clause 4.3(f)(v) of the Electricity Supply Code, 2005. Issue-wise Detailed Analysis: 1. Validity of the Demand Notice: The writ petition challenges the demand notice dated 30.06.2022 for recovery of electricity dues from the directors of M/s Trimurti Concast Pvt Ltd. The petitioner contends that the notice is invalid as the company is undergoing insolvency proceedings, and the dues should be settled as per the resolution plan approved by the NCLT. 2. Impact of the Insolvency and Bankruptcy Code, 2016 (IBC) on the Recovery of Dues from the Directors: The petitioner argues that once the company went into insolvency and the resolution plan was approved, the outstanding electricity dues could not be recovered from its directors. The court examined the provisions of the IBC, noting that the Code is a complete legislation with an overriding effect on other laws. It was highlighted that the moratorium under Section 14 of the IBC applies only to the corporate debtor and not to personal guarantors. The court referenced the Supreme Court's decisions, emphasizing that the approval of a resolution plan does not discharge the personal guarantor's liability. 3. Personal Liability of the Directors for the Electricity Dues of the Corporate Debtor: The court considered the affidavit filed by one of the directors, Ashok Sharma, who had undertaken to be personally liable for the company's dues. The court noted that the personal guarantee provided by the director makes him liable for the dues, independent of the company's insolvency proceedings. The court cited several Supreme Court rulings, affirming that the liability of personal guarantors remains intact despite the approval of a resolution plan for the corporate debtor. 4. Applicability and Validity of Clause 4.3(f)(v) of the Electricity Supply Code, 2005: The respondents argued that Clause 4.3(f)(v) of the Electricity Supply Code, 2005, empowers the electricity department to recover dues from the directors of a company. The petitioner challenged the validity of this clause, but the court noted that no substantial arguments or foundation were laid in the writ petition regarding this challenge. Therefore, the court did not entertain this argument. Conclusion: The court dismissed the writ petition, holding that the demand notice for recovery of electricity dues from the directors of the corporate debtor is valid. The court concluded that the approval of a resolution plan under the IBC does not discharge the personal liability of the directors who have provided personal guarantees. The court also clarified that the challenge to the validity of Clause 4.3(f)(v) of the Electricity Supply Code, 2005, was not adequately supported in the petition and thus could not be entertained.
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