Pre-CIRP Dues Cannot Be Recovered After Admission Of Corporate Debtor Into Insolvency: NCLAT

The NCLAT Chennai bench of Justice Rakesh Kumar Jain (Judicial Member) and Mr. Ajai Das Mehrotra (Technical Member) has held that pre-CIRP dues cannot be recovered once the corporate debtor is admitted into insolvency due to moratorium under section 14 of the code. Any amount due to the corporate debtor can be recovered by filing claims before the IRP/RP as the case may be. Brief Facts The present appeal has been filed by the Central Transmission Utility of India Limited (earlier Power Grid Corporation of India) against an order passed by NCLT Hyderabad. KSK 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. The Corporate Debtor, along with other generators in the state of Chhattisgarh and Chhattisgarh Power Trading Company Limited had entered into a Bulk Power Transmission Agreement dated 24.02.2010 with Power Grid Corporation of India Limited (PGCIL) 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. 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. 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 the amount towards transmission charges outstanding. Contentions: The appellant submitted that there is no dispute to the effect that the Corporate Debtor is liable to pay transmission charges to the Appellant. Admittedly, the amount of Rs. 108.44 Crores was deposited by the Corporate Debtor as payment security mechanism and the same is for transmission 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. It was further submitted that 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. Per contra, the respondents submitted that once CIRP is initiated against the Corporate Debtor, a moratorium under Section 14 of the Code comes into effect, which restricts recovery of money from the Corporate Debtor. It was further submitted that the Appellant had filed its claim to the tune of Rs. 356.41 crores out of which an amount of Rs. 98.75 crores had been admitted by the Resolution Professional, while remaining amount was paid by the Corporate Debtor before admitting the claims. It was further submitted that despite such 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. Issue Before Tribunal 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 Debtor in CIRP, during the pendency of the said CIRP. Decision of The Tribunal: The tribunal referred to section 14 of the code and noted that 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. The tribunal further noted that 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. In Embassy Property Developments...

Pre-CIRP Dues Cannot Be Recovered After Admission Of Corporate Debtor Into Insolvency: NCLAT

Mohd Malik Chauhan

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