Adani's IBC Acquisition: Bombay HC Directs MSEDCL To Provide New Electricity Connection Without Clearance of National Rayon Co.'s Past Dues Worth 28Cr

A division bench of Justices Gautam Patel and Gauri Godse prima facie agreed with NRC's argument that MSEDCL's didn't file a claim before the Resolution Professional in time, therefore, its claim for past dues stands extinguished. Under the IBC, the Committee of Creditors had approved the resolution plan on July 3, 2019, however MSEDCL put in its claim first in October 2019.

Furthermore, it rejected MSEDCL's argument about it being the RP's responsibility to include its claims while preparing the resolution plan citing pending litigation between NRC and MSEDCL.

"It was for MSEDCL to put in its claim, and to do so within time. It cannot, prima facie, by this circuitous route of 'deemed knowledge' position itself outside, or distance itself from, the approved Resolution Plan. If tax authorities are within the net of the IBC and the CIRP process, so is MSEDCL," the court observed.

Background

NRC produced yarn and basic chemical but in 2009 its management issued a lockout. MSEDCL issued a disconnection notice to the company in 2015 and in the same year Punjab National Bank approached the NCLT under section 7 of the Bankruptcy Code, and initiated the Corporate Insolvency Resolution Process (CIRP). According to procedure, the plea was admitted, IRP was appointed, public notice was issued with an extended deadline to file claims by March 2019.

Same day, MSEDCL issued a notice for payment of Rs 13 crore but by the MSEDCL put its first claim before the IRP, the CoC had already accepted the plan put forth by Adani Properties. On March 13, 2020 NCLT accepted the resolution plan.

Meanwhile, MSEDCL sought to recover over Rs 29 crore in arrears from Adani which they refused citing the resolution plan. MSEDCL in turn refused a new connection, payment of arrears and withdrawal of all court cases.

NRC approached the HC seeking a new connection.

Arguments

Advocate Changez Keswani for NRC argued If, the Resolution Plan is the outcome of an arduous process and the Resolution applicant (Adani) assesses the viability before putting forth its proposal. If every creditor then chooses to stay outside the CIRP and later raise a demand, and if Court after Court is then going to compel the Resolution Applicant to deposit vast amounts in Court, the entire approved Resolution Plan is as good as shattered, he argued.

Advocate Deepa Chavan for the electricity department said the Adani was aware of MSEDCL's claim and should have informed the IRP about the pending dues. She cited a new rule under MERC (Electricity Supply Board and Standard of Performance of Distribution Licenses including Power Quality) Regulations 2021, according pending dues would be recovered from the new owner of the premises.

Observation

At the outset the court noted the order was only for interim measures. It disagreed with Advocate's Chavan's proposition about a creditor having no obligation to file its proof of claims with the IRP or RP and said it would create havoc with the CIRP Process. The court distinguished the CIRP from liquidation.

Relying on the SC judgement in Ghanashyam Mishra & Sons Pvt Ltd v Edelweiss Assets Reconstruction Company which elaborately analysis the IBC the court said that all claims and dues owed to any State Government, Central Government or any authorities — including tax authorities — and which were not part of the resolution shall stand extinguished.

The bench added that the 2021 Regulation doesn't permit "MSEDCL to stand outside an approved Resolution Plan for the simple reason that its claim is for past dues, and these have been dealt with by the Resolution Plan."

Consequently, the court directed MSEDCL to process NRC's application for a fresh connection without paying any deposit regarding the past payment. It, however, allowed MSEDCL to continue to show the amount as arrears in its records.

Case Title: NRC Limited VERSUS State of Maharashtra and Anr.

Citation: 2022 LiveLaw (Bom) 379 

Click Here To Read/Download Judgment