High Tension Electricity Connection Of CD Cannot Be Restored Unless Security Deposit Is Paid: NCLAT Delhi

Background Facts

Kalptaru Steel Rolling Mills Ltd. ("Corporate Debtor") was admitted into Corporate Insolvency Resolution Process ("CIRP") by the Adjudicating Authority vide an order dated 14.08.2018. Subsequently, on 14.02.2020 the Adjudicating Authority had approved a Resolution Plan for the Corporate Debtor and a Monitoring Committee was constituted. The Chairman of the Monitoring Committee had filed an application before the Adjudicating Authority, seeking direction to M/s Southern Power Distribution Company of A.P. Ltd. to immediately restore electricity connection of the Corporate Debtor. It was further prayed that the restoration be made without insisting for payment of any past dues or any fresh security deposit from the Resolution Applicant, as the supply of electricity is an essential and integral part of the resolution of the Corporate Debtor.

The Adjudicating Authority held that once plan is approved, parties upon which the plan is binding cannot rake up past liabilities by invoking law that is inconsistent with IBC. It was further held that the Applicant is not entitled for restoration of electricity connection without making payment for security deposit.

The Monitoring Committee filed an appeal before NCLAT against the Order dated 08.09.2020.

Decision Of NCLAT

The Bench observed that the Adjudicating Authority had rightly concluded that security deposit is a pre-condition for sanction of High Tension Power Connection to industries. The Applicant being a heavy industry huge power supply is required. The security deposit is only to adjust the shortfalls which come in payment of bills.

Reliance was placed on an earlier judgment of NCLAT in Damodar Valley Corporation vs. Cosmic Ferro Alloys Limited & Anr., Company Appeal (AT) (Ins.) No. 110 of 2020, wherein it was held as under:

"25. We, therefore, quash and set aside the impugned order and make it clear that any security deposit or other charges for requested increase in contract demand and enhanced supply line for electricity will have to be paid to the discom DVC in accordance with the relevant and extant laws and regulations. The payment of dues for electricity supplied to the corporate debtor during the moratorium period, to keep the corporate debtor as a going concern, should be paid out of CIRP costs, and the payment should be ensured by the Resolution Professional. Any dues relating to electricity supplied after the moratorium has ceased will have to be paid by the corporate debtor to the discom DVC."

The Bench upheld the Adjudicating Authority's decision to resume electricity supply upon payment of security deposit amount. The appeal was dismissed.

Case Title: Kalptaru Steel Rolling Mills Ltd. v Southern Power Distribution Company of A.P. Ltd.

Case No.: Company Appeal (AT) (Insolvency) No. 866 of 2020

Counsel For Appellant: Mr. Anoop Prakash Awasthi, Ms. Prapti Singh, Mr. Parthivi Ahuja, Advocates.

Counsel For Respondent: Mr. Rakesh K. Sharma, Mr. Nishant Sharma, Advocates.

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