National Company Law Appellate Tribunal terms use of Electricity by Corporate Debtor as essential

National Company Law Appellate Tribunal terms use of Electricity by Corporate Debtor as essential

NCLAT rules that during the Corporate Insolvency Resolution Process electricity supply falls under the essential supply category to the extent that it is not a direct input to the output produced or supplied by it

The National Company Law Appellate Tribunal (NCLAT) provided the liberty to the Resolution Professional to put on record particulars relating to the electricity supply required which would not be a direct input to the output produced by the Corporate Debtor in order to seek relief for resumption of the electricity so as to use the same to the extent.

The Principal Bench of the National Company Law Appellate Tribunal at New Delhi comprising Justice A.I.S. Cheema and Dr Alok Srivastava heard the matter titled Harish Taneja v Dakshin Haryana Bijli Vitran Nigam.

The main crux of this matter was that the supply of the electricity for the Corporate Debtor had been cut off for not non-payment of dues when its Corporate Insolvency Resolution Process (CIRP) was still pending. The present appeal was challenging the order of the National Company Law Tribunal (NCLT) wherein, the Appellant – Resolution Professional was directed to pay Respondent – Electricity Company an amount of ₹1,50,000 out of total outstanding dues of the electricity which was ₹7,18,647.

The Appellant – Resolution Professional submitted that the electricity supply could not have been disconnected, in moratorium since electricity was an essential service by relying on the provisions of Section 14 of Insolvency and Bankruptcy Code, 2016 (IBC) and Regulation 32 of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 (Regulations).

The Appellant agreed that there were no outstanding bills of electricity before the CIRP was initiated and the amount of ₹7,18,647 towards consumption of electricity was incurred during the CIRP process. It was contended that the Appellant – Resolution Professional was having a problem in conducting Corporate Insolvency Resolution Process (CIRP) and raising interim finance, as the Financial Creditor was not contributing during the CIRP.

The Tribunal noted the provisions of Sections 14(2) and 14(2A) of the Insolvency and Bankruptcy Code which deal with the supply of essential goods or services to the Corporate Debtor.

The bench concluded that the supply of essential goods or services to the Corporate Debtor could not be terminated or suspended or interrupted during the moratorium period. However, if the supply was used to keep Corporate Debtor a going concern then the service of electricity could not be terminated provided the dues arising from such supply during moratorium were paid and if they were not paid, Section 14 (2A) would not protect the same.

The bench further went through Regulation 32 of the Regulations, which was to be read with Section 14(2) as it deals with 'Essential Supplies'. The following observation was made by the bench:

"Use of electricity by the Corporate Debtor in CIRP would be essential supply to the extent it is not a direct input to the output produced or supplied by the Corporate Debtor. Like using of water to generate hydro-electricity is not essential supply similarly, use of electricity in the present matter for running the printing business of the Corporate Debtor cannot get protection as essential supply."

However, the Appellant agreed to pay the dues on priority when the Corporate Debtor would go into liquidation but even if the Corporate Debtor went into liquidation, the machines to be sold would require to be demonstrated as functioning and this could not be done without electricity.

The Appellate Tribunal chose not to interfere with the order of the National Company Law Tribunal but considering the situation, provided the liberty to the Appellant to specifically put on record particulars relating to the electricity supply required which would not be a direct input to the output produced by the Corporate Debtor. It allowed these particulars to be used to modify the amount to be paid by seeking relief before the National Company Law Tribunal for resumption of the electricity supply so as to use the same to the extent it would not be a direct input to the output produced by the Corporate Debtor.