IBC | Cannot Ask Successful Resolution Applicant To Pay Arrears Payable By Corporate Debtor For Grant/Restoration Of Electricity Connection: Supreme Court

The Supreme Court has held that under the Insolvency and Bankruptcy Code, 2016 (“IBC”), once the Resolution Plan stands approved by the National Company Law Tribunal (NCLT), the Electricity Department cannot demand payment of arrears, which were payable by the Corporate Debtor, from the Successful Resolution Applicant for restoration/grant of electricity connection.

The Bench comprising Justice Sanjiv Khanna and Justice S.V.N Bhatti, has held that the ‘clean slate principle’ would stand negated if the Successful Resolution Applicant is asked to pay the arrears payable by the Corporate Debtor for the grant of an electricity connection in her/his name.

BACKGROUND FACTS

Tata Power Western Odisha Distribution Limited (“Appellant/TPWODL”) was supplying electricity to Jagannath Sponge Pvt. Ltd. (“Corporate Debtor”). The Corporate Debtor was admitted into Corporate Insolvency Resolution Process (CIRP) under the Insolvency and Bankruptcy Code, 2016 (“IBC”). Certain dues of TPWODL remained unpaid but no claims were filed against the same.

In 2021, the Resolution Plan submitted by Successful Resolution Applicant came to be approved by the National Company Law Tribunal (NCLT). Later in 2022, when the Successful Resolution Applicant requested restoration/grant of electricity connection from TPWODL, the latter demanded payment of its arrears first.

The NCLT held that demand for arrears post approval of Resolution Plan is invalid and directed TPWODL to consider the request for electricity connection without demanding arrears. TPWODL filed an appeal before the National Company Law Appellate Tribunal (“NCLAT”), whereby the NCLAT upheld the NCLT order. TPWODL filed an appeal against the NCLAT order before the Supreme Court.

SUPREME COURT VERDICT

The Bench placed reliance on its recent verdict in Paschimanchal Vidyut Vitran Nigam Ltd. vs. Raman Ispat Pvt. Ltd. and Ors,2023 LiveLaw (SC) 534, wherein it was held that IBC overrides the Electricity Act, 2003 and IBC treats the dues payable to secured creditors are at a higher footing than dues payable to Central or State Government.

It was opined that the issue is squarely covered by Paschimanchal Vidyut Vitran Nigam Ltd. vs. Raman Ispat Pvt. Ltd. and Ors. judgment and TPWODL cannot insist on payment of arrears, which have to be paid in terms of the waterfall mechanism, for grant of an electricity connection. However, the Successful Resolution Applicant is obligated to comply with the other requirements for grant of electricity connection.

The Bench held that the ‘clean slate principle’ would stand negated if the Successful Resolution Applicant is asked to pay the arrears payable by the Corporate Debtor for the grant of an electricity connection in her/his name.

While placing further reliance on Embassy Property Developments Private Limited vs. State of Karnataka and Ors., 2020 13 SCC 308, wherein it was held that, “The moment the dues to the Government are crystallised and what remains is only payment, the claim of the Government will have to be adjudicated and paid only in a manner prescribed in the resolution plan as approved by the adjudicating authority, namely, the NCLT.”

The Bench noted that a decision by public authority etc. may fall within the jurisdiction of the tribunals constituted under the IBC, where the issue relates to or arises out of the dues payable to an operational or financial creditor.

“The above-quoted observations from Embassy Property Developments Private Limited (supra) would confer jurisdiction on the tribunal constituted under the Code insofar as the appellant – Tata Power Western Odisha Distribution Limited is insisting on payment of the dues of the corporate debtor for restoration/grant of the electricity connection. The dues of the corporate debtor have to be paid in the manner prescribed in the resolution plan, as approved by the adjudicating authority. The resolution plan is approved when it is in accord with the provision of the Code. Thus, the issue of corporate debtor’s dues falls within the fold of the phrase ‘arising out of or in relation to insolvency resolution’ under section 60(5)(c) of the Code.”

The appeal has been dismissed.

Case Title: Tata Power Western Odisha Distribution Limited & Anr. V Jagannath Sponge Private Limited

Citation: 2023 LiveLaw (SC) 788

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