NCLAT Orders Refund Of Pre-CIRP Electricity Dues Paid By SRA Under Protest For Restoration Of Electricity Connection

The NCLAT bench comprising Justice Yogesh Khanna (Judicial Member) and Mr. Ajai Das Mehrotra (Technical Member) has allowed the refund of pre-Corporate Insolvency Resolution Process (CIRP) electricity dues paid by the Successful Resolution Applicant (SRA). Maharashtra State Electricity Distribution Co. (Respondent) had imposed the clearance of past dues as a precondition for restoring electricity connection. The Tribunal held that even if the payment was not made by the SRA/Appellant under protest, the Respondent was barred from recovering arrears that were extinguished by operation of law. Brief Facts: M/s Maharashtra Shetkari Sugar Ltd. (Corporate Debtor) was admitted to the Corporate Insolvency Resolution Process (CIRP) on 30.08.2018. The Corporate Debtor ran a sugar crushing unit. The Committee of Creditors approved the Resolution Plan filed by SRA/Appellant. On 07.11.2019, the NCLT approved the plan. The plan proposed to settle disclosed claims of Rs. 109.4 crore and pay Rs. 2 crore towards the debt of farmers. All contingent liabilities were waived off. When the SRA took over the Corporate debtor, the electricity connection of the Corporate Debtor was disconnected. The Appellant sought to restore electricity connection from the Respondent to resume its operations. The Respondent refused to restore the same unless pre CIRP dues were paid. The Appellant, under protest, paid the dues to ensure timely implementation of the Resolution Plan. The Appellant filed an application, seeking a refund of Rs. 2.11 crore. The NCLT, in terms of the Supreme Court's judgment in Ghanshyam Mishra & Sons v. Edelweiss Asset Reconstruction Company Limited, dismissed the application on 10.01.2023. The NCLT held that any claims not included in the Resolution Plan were extinguished upon its approval, and statutory dues that were not included could not be pursued any further. The Appellant filed the Appeal against the impugned order. Observations: The Tribunal noted that a sugar crushing factory generally operates during the crushing season, which lasts from November to April. During this time, electricity is crucial for the operation fo the factory as without it, its operations may come to a halt. The Tribunal observed that there was no option left for the appellant except to adhere to the demands raised by the Respondent lest the Respondent would not provide electricity in the coming sugar cane crushing season. Thus the pre-CIRP dues by the appellant were paid under protest and under protection of the order of NCLT and thus it related to the revival of the Corporate Debtor in terms of the Resolution Plan and to the Insolvency Resolution Process. The Tribunal held that the claim for refund could be adjudicated under section 60(5)(c) of IBC. The Tribunal placed reliance upon Tata Power Western Odisha Distribution Ltd (TPWODL) & Anr v. Jagannath Sponage Pvt Ltd [Civil Appeal No.5556 of 2023] and Southern Power Distribution Company of Andhra Pradesh Ltd v. Gavi Siddeswara Steels (India) Pvt Ltd and Another [Civil Appeal No.5716-5717 of 2023]. In these cases, the Supreme Court held that power distribution companies cannot insist on payment of arrears for restoration of electricity connection and that such a matter would fall within the ambit of Section 60 (5)(c) of IBC. The Tribunal held that the Respondent cannot be permitted to benefit from its own failure to file the claim and coercing the appellant to pay pre-CIRP dues for restoring the electricity. Even if the payment was not made by the appellant under protest and so was made only because of compulsion due to the coming season then also the Respondent was barred from seeking arrears of the amount that stood extinguished by operation of law as a precondition for restoring the appellants' electricity connection. The Tribunal referred to Ghanshyam Mishra, in which the Supreme Court stated that claims of creditors freeze upon the approval of the Resolution Plan, and any claim that is not part of the resolution plan is extinguished. The SRA cannot be saddled with claims which were not part of the Resolution Plan and the Corporate Debtor must be permitted to start with a clean slate. In this regard, the Tribunal placed reliance on Committee of Creditors for Essar Steel vs. Satish Kumar Gupta and Ors, where the Supreme Court held, “A successful resolution applicant cannot suddenly be faced with “undecided” claims after the resolution plan submitted by him has been accepted as this would amount to a hydra head popping up which would throw into uncertainty amounts payable by a prospective resolution applicant who successfully takes over the business of the Corporate Debtor.” The Tribunal held that the matter fell under Section 60(5)(c ) of IBC since it related to the insistence of the Respondent for payment of pre-CIRP amounts that stood extinguished by way of the Resolution Plan. ...

NCLAT Orders Refund Of Pre-CIRP Electricity Dues Paid By SRA Under Protest For Restoration Of Electricity Connection

Tazeen Ahmed

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