Electricity Being Essential Supply Cannot Be Disconnected During CIRP Period As Per Section 14(2) Of IBC: NCLAT

The National Company Law Appellate Tribunal (NCLAT) New Delhi bench of Justice Ashok Bhushan (Judicial Member), Mr. Barun Mitra (Technical Member) and Mr. Arun Baroka (Technical Member) has held that electricity being an essential supply cannot be disconnected during moratorium period under section 14 of the Insolvency and Bankruptcy Code, 2016 (Code) even if no payment is made for such such supply. The payment for such supply shall form part of Corporate Insolvency Resolution Process (CIRP) costs. Brief Facts: Morarjee Textile Limited (Corporate Debtor) was provided electricity connection by the Maharashtra State Electricity Distribution Company Ltd. (Appellant). Electricity Bill for the month of January 2024 was raised by the Appellant for unpaid electricity dues. A week later, the corporate debtor was admitted into Corporate Insolvency Resolution Process (CIRP) on an application filed by Axis Bank Limited. The Interim Resolution Professional issued public announcement in pursuance of which the Appellant filed its claims towards unpaid electricity dues. Subsequently, electricity supply was disconnected by the Appellant when no payment was made by the corporate debtor towards unpaid electricity dues. The electricity connection was restored on the assurances that the dues will be cleared. The supply was against discontinued. Thereafter, the Resolutional Professional wrote a letter stating that the electricity supply cannot be disconnected during CIRP period as per section 14(2) of the code. An Interlocutory Application ('IA') was filed by the Resolution Professional praying for various reliefs including directions to restore the electricity supply. On 03.09.2024, the Adjudicating Authority passed an interim order directing the Appellant to restore the electricity supply of the corporate debtor for 15 days. The Appellant filed a reply to the above application. The Application was allowed. Aggrieved by the impugned order this Appeal has been filed. Contentions: The Appellant submitted that the Adjudicating Authority has ignored the mandate of Section 14(2-A) while directing the Appellant to restore the electricity but no direction has been issued regarding payment of electricity dues during the CIRP period. It was also argued that there is no prohibition or bar imposed by the IBC towards payment of dues arising from essential services supply during CIRP period. Per contra, the respondents while placing reliance on Regulation 32 of the CIRP Regulations submitted that electricity being identified as essential supply it cannot be disconnected during moratorium period and the Appellant was obliged to continue the electricity of the corporate debtor. It was also argued that as per Regulation 31, the electricity dues during CIRP period are CIRP costs and Appellant is entitled for CIRP costs in priority as per the provisions of the IBC and the Appellant cannot insist for payment during CIRP period. Observations: The Tribunal, while referring to Regulation 32 of the CIRP Regulations, observed that electricity qualifies to be an essential supply unless it is a direct input to output of the corporate debtor. It further observed that there is nothing on record to establish that electricity is a direct input to the output produced or supplied by the corporate debtor therefore the Electricity supply in the present case has to be treated as essential supply within the meaning of section 14(2) read with Regulation 32 of the CIRP Regulations. Based on the above, it said that the electricity which is not a direct input to the output produced is essential supply within the meaning of Section 14(2) read with Regulation 32 of the CIRP Regulations and it is clearly covered by the protection extended by legislature under Section 14(2). The Supreme Court in Sandeep Khaitan, Resolution Professional for National Plywood Industries Limited vs. JSVM Plywood Industries Limited and Anr.(2021) held that Section 14(2A) of the code which was inserted through an amendment effective from December 28, 2019, extends protection to goods and services beyond those already covered under section 14(2) of the code. The court further observed that the decision, however, under this provision rests with the Interim Resolution Professional or Resolution Professional as the case may be as to which services or goods are essential to preserve and protect the value of the corporate debtor and manage the operations of such corporate debtor as going concern. Once the decision is taken, supply of such services or goods shall not be discontinued or interrupted. Based on the above, the Tribunal noted that from the above observations of the Supreme Court, it is clear that the scope of section 14(2) and 14(2A) of the code is different. The NCLAT in 'Shailesh Verma, Resolution Professional of Lavasa Corporation Limited and Ors. vs. ...

Electricity Being Essential Supply Cannot Be Disconnected During CIRP Period As Per Section 14(2) Of IBC: NCLAT

Mohd Malik Chauhan

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