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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 ..... Mahanadi Power Company Limited (hereinafter called the 'Corporate Debtor or CD') is a company engaged in business of power generation. The Corporate Debtor was admitted into Corporate Insolvency Resolution Process (hereinafter called the 'CIRP') on 03.10.2019. 3. The following events prior to the CIRP are relevant for decision in this case: Date Particulars 05.12.2012 KSK Mahanadi Power Co. Ltd. ("Corporate Debtor") entered into a Transmission Service Agreement ("TSA") with CTUIL for transmitting power from generating point to point of distribution companies in certain states. 01.08.2018 CTUIL issued a notice to the Corporate Debtor for termination of the TSA on account of non-opening of the requisite letter of credit ("Termination Notice"). 30.10.2018 The Termination Notice was challenged before the Central Electricity Regulatory Commission ("CERC") wherein the Corporate Debtor was directed to open a letter of credit of Rs. 108.44 crores. 08.02.2019 The aforementioned proceedings were disposed of as infructuous as the Corporate Debtor had made a cash deposit of Rs. 108.44 crores in lieu of the letter of credit. 4. Following events subsequent to the initiatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... During the CIRP of Corporate Debtor, PGCIL issued notice for cessation on 31.12.2019 terminating the TSA on account of default. PGCIL accepted the clarification given by the Corporate Debtor and the PGCIL cessation notice became infructuous. d. The PGCIL vide letter dated 03.01.2020 issued notice of Power Regulation for quantum of 500 MW. The Central Electricity Regulatory Commission (CERC) vide its record of proceedings dated 21.01.2010 in Petition No. 113/MP/2020 directed PGCIL not to regulate the power supply as long as Corporate Debtor makes the payment of Rs. 100 crores and maintains outstanding dues of more than 45 days to PGCIL at less than Rs. 122 crores as a consequence, the Corporate Debtor remitted Rs. 100 crores as payment towards outstanding amounts with the payments of regular bills and power regulation notice was lifted. e. The Corporate Debtor had made a security deposit for an amount of Rs. 108.44 crores with PGCIL in accordance with its obligations. On 28.03.2020, PGCIL sent an email to the Corporate Debtor stating that it has unilaterally encashed the payment security mechanism maintained by the Corporate Debtor for an amount of Rs. 108.44 crores and adjusted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ethod as per the CERC Sharing Regulations 2010; C. Such other orders or order be passed as the Hon'ble Tribunal may deem fit and proper." 7. In its written and oral submissions, the Learned Counsel for the Appellant submitted that the issue in the present case relates to adjustment of amount available with the Appellant towards pre-CIRP dues of the Corporate Debtor. The Corporate Debtor being generator had availed Open Access of the inter-state transmission system and in terms of Regulatory regime under the Electricity Act, 2003 read with CERC Sharing Regulations, the entities enter into agreement with the Appellant setting out the terms and conditions of such open access. The Appellant as Central Transmission Utility (CTU) is liable to raise bills and collect transmission charges on behalf of all inter-state transmission licensees. 8. The Regulatory regime of CERC provides for mechanisms to ensure payment to ensure proper functioning of national grid. The Transmissions Service Agreement (TSA) between the Corporate Debtor and the Appellant also provides for Letter of Credit (LC) and application of the procedure. There is no dispute to the effect that the Corporate Debtor is l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uch admission of the claim by Resolution Professional, the Appellant enforced the security deposit of Rs. 108.44 crores and adjusted it towards pre-CIRP dues, which is in violation of Section 14 of the IBC, 2016. 12. In support of his contention regarding moratorium under Section 14 of the IBC, 2016, the Learned Counsel for the Respondents cited the following judgments: * ABG Shipyard Liquidator v. Central Board of indirect Taxes & Customs, (2023) 1 SCC 472, paras 38, 40, 41, 44-48, 55; * Nimitya Infotech (P) Ltd. v. Cox & Kings Ltd., 2022 SCC OnLine NCLAT 1350, para 14; * Pradeep Kumar Kabra v. Commissioner, 2023 SCC OnLine NCLAT 1849, paras 9, 17, 18. * Indian Overseas Bank v. Mr. Dinkar T. Venkatasubramanian, Resolution Professional of Amtek Auto Ltd., 2017 SCC Online NCLAT 584, paras 2, 3, 5, 6. 13. We have heard the Learned Counsel for the Appellant and the Respondents and have perused the records of the case, as well as the judgments cited. 14. Apparently, the issue for decision in this case is whether a deposit lying with a third party can be adjusted against pre-CIRP dues by it during the moratorium which comes into effect immediately on admission of Corporate Deb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te debtor and manage the operations of such corporate debtor as a going concern, then the supply of such goods or services shall not be terminated, suspended or interrupted during the period of moratorium, except where such corporate debtor has not paid dues arising from such supply during the moratorium period or in such circumstances as may be specified.] [(3) The provisions of sub-section (1) shall not apply to - [(a) such transactions, agreements or other arrangement as may be notified by the Central Government in consultation with any financial sector regulator or any other authority;] (b) a surety in a contract of guarantee to a corporate debtor.] (4) The order of moratorium shall have effect from the date of such order till the completion of the corporate insolvency resolution process: Provided that where at any time during the corporate insolvency resolution process period, if the Adjudicating Authority approves the resolution plan under sub-section (1) of section 31 or passes an order for liquidation of corporate debtor under section 33, the moratorium shall cease to have effect from the date of such approval or liquidation order, as the case may be." 16. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... imagination, be brought within the fold of the phrase "arising out of or in relation to the insolvency resolution" appearing in Clause (c) of Sub-section (5). Let us take for instance a case where corporate debtor had suffered an order at the hands of the Income Tax Appellate Tribunal, at the time of initiation of CIRP. If Section 60(5)(c) of IBC is interpreted to include all questions of law or facts under the sky, an Interim Resolution Professional/Resolution Professional will then claim a right to challenge the order of the Income Tax Appellate Tribunal before the NCLT, instead of moving a statutory appeal under Section 260A of the Income Tax Act, 1961. Therefore, the jurisdiction of the NCLT delineated in Section 60 (5) cannot be stretched so far as to bring absurd results. (It will be a different matter, if proceedings under statutes like Income Tax Act had attained finality, fastening a liability upon the corporate debtor, since, in such cases, the dues payable to the Government would come within the meaning of the expression operational debt" under Section 5(21), making the Government an "operational creditor" in terms of Section 5(20). The moment the dues to the Government ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ities are developed in the manner it chooses and for which fresh approval under the MMC Act may be forthcoming for a separate scheme formulated by that corporation (MCGM)." 21. In the aforesaid case, the Court has held that Section 238 will be of importance when the properties and assets of the Corporate Debtor are involved and not when the assets of the 3rd party like MCGM is involved. The present case is regarding security deposit, which till it is adjusted, remains the property of the Corporate Debtor. 22. The other two judgments cited by the Appellant relate to performance bank guarantee. It is nobody's case that the security deposit made by the Corporate Debtor in this case, was a guarantee for any performance in operations. The security deposit was only a security held against any default in payment. 23. In further deciding the issue, we are guided by the following judgments: (i) ABG Shipyard Liquidator v. Central Board of Indirect Taxes & Customs, (2023) 1 SCC 472, wherein the Hon'ble Supreme Court has held as under: "38. Section 14 of the IBC prescribes a moratorium on the initiation of CIRP proceedings and its effects. One of the purposes of the moratorium is to kee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her, when insolvency resolution failed and the liquidation process began, the NCLT passed an order on 25.04.2019 imposing moratorium under Section 33(5) of the IBC. It is only after this order that the respondent issued a notice under Section 72 of the Customs Act against the Corporate Debtor. The various demand notices have therefore clearly been issued by the respondent after the initiation of the insolvency proceedings, with some notices issued even after the liquidation moratorium was imposed. 45. We are of the clear opinion that the demand notices to seek enforcement of custom dues during the moratorium period would clearly violate the provisions of Sections 14 or 33(5) of the IBC, as the case may be. This is because the demand notices are an initiation of legal proceedings against the Corporate Debtor. However, the above analysis would not be complete unless this Court examines the extent of powers which the respondent authority can exercise during the moratorium period under the IBC. 57. On the basis of the above discussions, following are our conclusions: 57.1. Once moratorium is imposed in terms of Sections 14 ог 33(5) of the IBC as the case may be, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uest him to allow it to be a member of the Creditors Committee which should be considered in accordance with law." ( Emphasis supplied ) 24. In Paschimanchal Vidyut Vitran Nigam Ltd. v. HAS Traders & Others, Civil Appeal No. 7976 of 2019, 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 (Sections 173 and 174). The relevant part of the judgment is reproduced below for ready reference: "52. The views expressed by the present judgment finds support in the decision reported as Sundaresh Bhatt, Liquidator of ABG Shipyard v. Central Board of Indirect Taxes and Customs. In that case, Section 142A of the Customs Act 1962 was in issue - authorities had submitted that dues payable to it were to be treated as 'first charge' on the property of the assessee concerned. In the resolution process, it was argued that the Customs Act, 1962 acquired primacy and had to be given effect to. This court, after noticing the overriding effect of Section 238 of the IBC, held as follows: "55. For the sake of clarity following questions, may be answe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rances Private Limited]" ( Emphasis supplied ) 25. In a very recent judgment dated 13.11.2024, the Hon'ble Bombay High Court in Interim Application (Lodg.) No. 31055 of 2024 in Appeal No. 597 of 2016 has held as under: "55. In the result, in view of the CIRP proceedings pending in relation to the Applicant-Appellant:- A) We hold that monies or any other asset deposited by a corporate debtor in court prior to commencement of CIRP by way of security (to protect against execution of any judgement or decree), would not cease to be the asset of the corporate debtor; B) Consequently, the monies deposited by the Applicant- Appellant in this Court constitute assets owned by the Applicant-Appellant although they are not in possession of the Applicant-Appellant; C) Therefore, we hereby permit the Applicant-Appellant to withdraw Appeal No. 597 of 2016, and indeed withdraw the amounts deposited in this Court in these proceedings, along with all earnings thereon. Refund of Court fees shall be processed as per Rules; D) The amounts deposited in Court shall be released to the Applicant-Appellant within a period of two weeks from today, subject to compliance with the procedural ..... 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