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TMI Blog2024 (12) TMI 92X X X X Extracts X X X X X X X X Extracts X X X X ..... essential goods or services shall continue except where Corporate Debtor does not pay the dues arising from such supply during the moratorium period. In Paschimanchal Vidyut Vitran Nigam Ltd. v. HAS Traders Others, [ 2023 (7) TMI 831 - SUPREME COURT ], the Hon ble Supreme Court has held that IBC will prevail over provisions of the Electricity Act, 2003, despite the latter containing two specific provisions which open with non-obstante clauses. In the scheme of the IBC, 2016 once a Corporate Debtor is admitted into CIRP, all recovery action for past dues come to a standstill. During CIRP period, the Corporate Debtor has to be kept as a going concern and all essential supplies of goods or services have to be continued, subject to payment of dues arising from such supply during the moratorium period , that is, on payment of current dues. Recovery of past dues is specifically prohibited and the specified procedure envisages that the creditor will file claim, in proper form, before IRP/RP, which has been done in the present case. The Appellant could not have adjusted the security payment deposit against pre-CIRP dues. In the light of the provisions of IBC, 2016 and the guidance provide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0 CTUIL issued a notice of regulation of electricity to the Corporate Debtor for making defaults 03.01.2020 CTUIL filed its claim with the Resolution Professional for an amount of Rs. 356.41 crores. 21.01.2020 The above notice of regulation was challenged before the CERC wherein the Corporate Debtor was directed to pay Rs. 100 crores along with current transmission charges. 22.01.2020 and 7.02.2020 In compliance with the order dated 21.01.2020, the Corporate Debtor deposited the amount of Rs. 100 crores in instalments. 28.03.2020 CTUIL invoked the security deposit of Rs. 108.44 crores for adjustment of the same against the outstanding amounts for pre-CIRP period. 03.06.2020 CTUIL issued another notice on regulation of power supply w.e.f. 18.06.2020. On the same day, CTUIL issued another notice asking the Corporate Debtor to open a letter of credit for an amount of Rs. 134.71 crores. 22.06.2020 The Corporate Debtor filed an application bearing number I.A. No. 487 of 2020 challenging the notices dated 03.06.2020 and the action of CTUIL to adjust the security deposit of Rs. 108.44 crores against pre-CIRP dues. 09.10.2020 The Ld. NCLT vide the Impugned Order held that such appropriatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r was maintaining outstanding dues bill at less than of Rs. 122 crores. Earlier invoices raised by PGCIL are currently in dispute in CERC No. 113/MP/2020, despite this, the PGCIL encashed the security deposit. g. The PGCIL had filed claim as an Operational Creditor with the Resolution Professional and the Resolution Professional had allowed the said application. This being the case, the action of PGCIL in enforcing the security mechanism of Rs. 108 crores against outstanding payments of the pre-CIRP period is against the provisions of Code. h. It was noted that moratorium has been declared in view of Section 14 of the IBC, 2016 on admission of Corporate Debtor in CIRP on 03.10.2019 and any action to foreclose, recover or enforce any security interest created by the Corporate Debtor in respect of its property is specifically prohibited under Section 14 of the Code. i. The Ld. NCLT, through order dated 09.10.2020 held the action of Operational Creditor to be in violation of Section 14 and directed it to adjust the appropriated payment security towards the post CIRP dues. The relevant para of the order is reproduced below: 7. The appropriation of the security deposit available with an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... charges dues payable by the Appellant as CTU, which were accordingly appropriated towards said dues and the said amount of Rs. 108.44 Crores was accordingly adjusted. 9. The Impugned Order, by not allowing the adjustment is denying the payment security mechanism which has been recognized as necessary in the CERC order. It was submitted that the Adjudicating Authority has exceeded its jurisdiction by directing not to adjust the said amount towards pre-CIRP dues, and instead to adjust it against the post CIRP dues. It is contended by the Appellant that FIFO method (First In First Out) is the approved procedure in relation to transmission charges and the amount is first to be adjusted against the older dues. In terms of the regulatory regime under the Electricity Act, 2003 and CERC Regulations, the amount of Rs. 108.44 crores is first to be adjusted against old dues. Thus, the adjustment of security deposit cannot be limited to the post-CIRP dues and the impugned order is contrary to regulatory regime under the Electricity Act and CERC order dated 30.08.2018. 10. The Learned Counsel for the Appellant relied upon following decisions in support of his contentions: Embassy Property Devel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 016, which is reproduced below: 14. Moratorium. - (1) Subject to provisions of sub-sections (2) and (3), on the insolvency commencement date, the Adjudicating Authority shall by order declare moratorium for prohibiting all of the following, namely: - (a) the institution of suits or continuation of pending suits or proceedings against the corporate debtor including execution of any judgement, decree or order in any court of law, tribunal, arbitration panel or other authority; (b) transferring, encumbering, alienating or disposing off by the corporate debtor any of its assets or any legal right or beneficial interest therein; (c) any action to foreclose, recover or enforce any security interest created by the corporate debtor in respect of its property including any action under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (54 of 2002); (d) the recovery of any property by an owner or lessor where such property is occupied by or in the possession of the corporate debtor. [Explanation.-For the purposes of this sub-section, it is hereby clarified that notwithstanding anything contained in any other law for the time being in for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cating Authority under section 7, 9 or section 10, as the case may be: Further, as per Section 14(1)(c), there is prohibition for any action to foreclose, recover or enforce any security interest created by the Corporate Debtor. Subsection (2) envisages that the Corporate Debtor will continue to run as a going concern and that supply of essential goods or services to the Corporate Debtor shall not be terminated or suspended or interrupted during the CIRP, whereas Sub-section (2A) provides that the supply of essential goods or services shall continue except where Corporate Debtor does not pay the dues arising from such supply during the moratorium period. 17. At this stage, it is relevant to peruse Section 238 of IBC, 2016, which lays down as under: 238. Provisions of this Code to override other laws. - The provisions of this Code shall have effect, notwithstanding anything inconsistent therewith contained in any other law for the time being in force or any instrument having effect by virtue of any such law. 18. We have considered the judgments cited by the Appellant. It is of relevance to refer to para 37 of the judgment of Hon ble Supreme Court in Embassy Property Developments Pvt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... NCLT under Section 60(5)(c). The later part of the said paragraph strengthens the case of the Respondent, instead of the case of the Appellant as it states that once a liability is fastened on the Corporate Debtor by any statutory authority, the dues payable to the Government will come within the meaning of the expression of Operational Debt and the claim of the Government will have to be adjudicated and paid only in the manner prescribed in the resolution plan, as approved by the Adjudicating Authority. Apparently, the pre-CIRP dues have to be paid in a manner prescribed in the resolution plan. 20. The 2nd case cited by the Appellant had relied upon in the case of Municipal Corporation of Greater Mumbai v. Abhilash Lal and Others, 2019 SCC online SC 1479, wherein he had relied upon paragraph 48, which is reproduced below: 48. In the opinion of this court, Section 238 cannot be read as overriding the MCGM's right - indeed its public duty - to control and regulate how its properties are to be dealt with. That exists in Sections 92 and 92A of the MMC Act. This court is of opinion that Section 238 could be of importance when the properties and assets are of a debtor and not when ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to quote the February 2020 Report of the Insolvency Law Committee, which notes as under: 8.2. The moratorium under Section 14 is intended to keep the corporate debtor's assets together during the insolvency resolution process and facilitating orderly completion of the processes envisaged during the insolvency resolution process and ensuring that the company may continue as a going concern while the creditors take a view on resolution of default. Keeping the corporate debtor running as a going concern during the CIRP helps in achieving resolution as a going concern as well, which is likely to maximize value for all stakeholders. In other jurisdictions too, a moratorium may be put in place on the advent of formal insolvency proceedings, including liquidation and reorganization proceedings. The UNCITRAL Guide notes that a moratorium is critical during reorganization proceedings since it facilitates the continued operation of the business and allows the debtor a breathing space to organize its affairs, time for preparation and approval of a reorganization plan and for other steps such as shedding unprofitable activities and onerous contracts, where appropriate. From the above, it c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... customs dues/operational debt) in terms of the procedure laid down, in strict compliance of the time periods prescribed under the IBC, before the adjudicating authority. 57.3. In any case, the IRP/RP/liquidator can immediately secure goods from the respondent authority to be dealt with appropriately, in terms of the IBC. ( Emphasis supplied ) (ii) In the case of Indian Overseas Bank v. Dinkar T. Venkatsubramaniam, Resolution Professional for Amtek Auto Ltd., this Tribunal has held as under: 5. Having heard learned counsel for the Appellant, we do not accept the submissions made on behalf of the Appellant in view of the fact that after admission of an application under Section 7 of the 'I B Code', once moratorium has been declared It is not open to any person including 'Financial Creditors' and the appellant bank to recover any amount from the account of the 'Corporate Debtor', nor it can appropriate any amount towards its own dues. 6. If the 'Corporate Debtor' has borrowed some amount from the Appellant-'Indian Overseas Bank and the Appellant 'Indian Overseas Bank' come within the definition of 'Financial Creditor' as defined in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The respondent authority does not have the power to initiate recovery of dues by means of sale/confiscation, as provided under the Customs Act. (b) Whether the respondent could claim title over the goods and issue notice to sell the goods in terms of the Customs Act when the liquidation process has been initiated? Answered in negative. 56. On the basis of the above discussions, following are our conclusions: (i) Once moratorium is imposed in terms of Sections 14 or 33(5) of the IBC as the case may be, the respondent authority only has a limited jurisdiction to assess/determine the quantum of customs duty and other levies. The respondent authority does not have the power to initiate recovery of dues by means of sale/confiscation, as provided under the Customs Act. (ii) After such assessment, the respondent authority has to submit its claims (concerning customs dues/operational debt) in terms of the procedure laid down, in strict compliance of the time periods prescribed under the IBC, before the adjudicating authority. (iii) In any case, the IRP/RP/liquidator can immediately secure goods from the respondent authority to be dealt with appropriately, in terms of the IBC. Similarly, in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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