Electricity Being Essential Service Needs To Be Continued During CIRP Period, NCLAT Delhi Upholds RP's Decision To Increase Maintenance Charges
While upholding the Resolution Professional (RP) decision to increase the maintenance charges for homebuyers of the Corporate Debtor to cover electricity bills and dues, the National Company Law Appellate Tribunal (Appellant Tribunal) Delhi, comprising Justice Ashok Bhushan (Chairperson), Mr. Barun Mitra (Technical Member), and Mr. Arun Baroka (Technical Member), held that...
While upholding the Resolution Professional (RP) decision to increase the maintenance charges for homebuyers of the Corporate Debtor to cover electricity bills and dues, the National Company Law Appellate Tribunal (Appellant Tribunal) Delhi, comprising Justice Ashok Bhushan (Chairperson), Mr. Barun Mitra (Technical Member), and Mr. Arun Baroka (Technical Member), held that electricity, being an essential service, must continue during the Corporate Insolvency Resolution Process (CIRP) period.
With approval from the Committee of Creditors (CoC), the RP raised the electricity rate from ₹7 per unit to ₹8.91 per unit for homebuyers who received possession of their flats in the Sanskriti Project of the Corporate Debtor.
Background Facts
Earthcon Infracon Pvt. Ltd. (Corporate Debtor) was developing two residential projects, "Sanskriti" and "CASA." In 2019, the NCLT, New Delhi (Adjudicating Authority) initiated Corporate Insolvency Resolution Proceedings (CIRP) against the Corporate Debtor.
The Resolution Professional (Respondent no 1) was appointed to manage the operations, which included providing maintenance and electricity to homebuyers (Appellants) who had received their apartments between February 2018 and January 2020.
At the start of the insolvency process, homebuyers were paying a maintenance fee of Rs. 1 per square foot plus GST, but there was an outstanding electricity bill owed to Noida Power Corporation Limited (Respondent no 2).
As unpaid electricity charges increased, the Committee of Creditors (CoC) passed a resolution in their 12th meeting on January 21, 2022, to raise the maintenance fee to Rs. 2 per square foot plus GST to cover electricity charges.
The homebuyers then filed an application (IA No. 1146 of 2022) to quash this decision and requested interim measures to prevent the disconnection of electricity for non-payment of increased fees.
On March 14, 2022, the Adjudicating Authority directed all residents to pay pending electricity and maintenance charges but instructed the RP not to disconnect electricity. Due to a total outstanding amount of Rs. 1.58 crore, the RP, unable to collect these dues, filed another application (IA No. 3234 of 2023) seeking permission to disconnect electricity for non-payment.
On June 14, 2023, the Authority modified its previous order, allowing the RP to take coercive steps regarding non-payment. IA No. 1146 of 2022 was dismissed as infructuous. Feeling aggrieved by the Adjudicating Authority's order dated June 14, 2023, the home buyers filed an appeal before the NCLAT (Appellate Tribunal).
NCLAT Verdict
The Appellate Tribunal observed that when the RP took over, there was a shortfall in maintenance charges and outstanding electricity dues. The Tribunal held that under the IBC, the RP was responsible for managing these payments. It noted that the Corporate Debtor was required by Section 11(4)(d) of the RERA Act to provide essential services, including electricity, until the project maintenance was taken over by the association of Homebuyers.
Further, The Appellate Tribunal observed that the Committee of Creditors (CoC) approved raising the electricity rate to ₹8.91 per unit, effective from January 1, 2021, for homebuyers who had taken possession of their flats in the Corporate Debtor's project. The resolution was passed with the required majority, with 87% of the financial creditors' representatives voting in favor.
The Appellate Tribunal held that IBC allows the payment of dues for essential services during the CIRP period. Also, there is no provision that excuses the Corporate Debtor from paying these amounts until the moratorium period ends.
Therefore, Appellate Tribunal uphold the Adjudicating Authority's order dated June 14, 2023 and dismissed the appeal of appellants/Homebuyers.
Case Title: Sanskriti Allottee Welfare Association (Reg.) & others Versus Gaurav Katiyar & anr
Case No.: Company Appeal (AT) (Insolvency) No. 878 of 2023
Counsel for Appellant:: Mr. Yashish Chandra, Mr. Aran Dev Pandey, Advocate
Counsel for Respondent: Mr. Rishabh Jain, Advocate for R-1 (RP) and Mr. Anil Dutt, Mr. Sarthak Garg, Mr. Sarvesh Mehra, Mr. Anupam Choudhary, Advocates for R-2 (NPCL).