Threat To Cut Electricity To Hotel During Insolvency Violates Moratorium: NCLT Chandigarh

The National Company Law Tribunal (NCLT) at Chandigarh has recently held that electricity is essential to the functioning of a hotel and must continue during insolvency proceedings. The tribunal restrained the Chandigarh Electricity Department from disconnecting power supply to a hotel undergoing the Corporate Insolvency Resolution Process.

A bench of Judicial Member Khetrabasi Biswal and Technical Member Shishir Agarwal said that a hotel cannot operate without uninterrupted electricity and that cutting power would strike at the heart of the insolvency process of Garib Nawaz Hotels.

“For a hotel business, as in this case, electricity is the most critical and foundational requirement to maintain operations, run appliances, lights, air conditioning, and comply with safety and hospitality standards. Therefore, the electricity supply to the Corporate Debtor must be maintained throughout the CIRP. The attempt by the Chandigarh Electricity Department (CED) to threaten disconnection for the non-payment of pre-CIRP dues is a direct violation of Section 14(2) of the code read with Regulation 32 of the CIRP Regulations, as it would frustrate the IRP's duty to preserve the Corporate Debtor as a going concern, thereby jeopardizing the entire resolution process.”, the tribunal observed. 

The matter came up after the National Company Law Tribunal admitted Punjab National Bank's insolvency petition against Garib Nawaz Hotels Private Limited on February 9, 2024. During the resolution process, the Chandigarh Electricity Department raised a claim of Rs 62.56 lakh towards electricity dues up to March 31, 2024. After a payment of Rs 9.90 lakh was made by the suspended directors, the department warned that power supply would be disconnected for the remaining dues of Rs 53.53 lakh.

The interim resolution professional challenged the move, saying the outstanding amount related to the period before the insolvency began and could not be paid during the resolution process. He pointed to Section 14(2) of the Insolvency and Bankruptcy Code, which requires essential services to continue during the moratorium, and noted that electricity is expressly recognised as an essential supply under the CIRP Regulations.

He also told the tribunal that the process had reached an advanced stage, with several resolution plans already received, and that disconnection of power would effectively shut the hotel and deter prospective bidders.

The tribunal rejected the electricity department's demand for special treatment. It noted that all electricity bills raised after the insolvency commenced were being paid on time. It also observed that recovery action for past dues could not be initiated once the matter was pending before the tribunal.

“It is not tenable on the part of the Respondents to initiate action for recovery of arrears when the matter is sub-judice. As per law, all stake holders including Electricity Board against the CD will be dealt in accordance with established procedure” the tribunal said.

It added that the electricity department “cannot be given special treatment, while settling all the claims against the Corporate Debtor.” It directed the department to submit its claim before the resolution professional and restrained it from terminating, suspending or interrupting electricity supply during the moratorium.

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