Case Analysis of Judgement of Noida Power Company Limited v Mr. Gaurav Katiyar RP of Earthcon Universal Infractech Pvt. Ltd. – By Adv. Sahil Arora

 Case Analysis of Judgement of Noida Power Company Limited v Mr. Gaurav Katiyar RP of Earthcon Universal Infractech Pvt. Ltd.¹ 

Adv. Sahil Arora
Advocate, Delhi High Court

 Brief Background of Appeals

Appellants filed two appeals  under Section 61 of Insolvency and Bankruptcy Code 2016 (‘IBC’ )before the Hon’ble Appellate Tribunal  against two separate Impugned Orders, both dated 03.05.2024. The details of two appeals are as under:

• Company Appeal (AT) (Insolvency) No.1209 of 2024 which arose out of order dated 03.05.2024 passed by the Adjudicating Authority (National Company Law Tribunal, New Delhi Bench– III), in I.A. No. 82 of 2022 in C.P. (IB) No. 1348 (ND)/2019.
• Company Appeal (AT) (Insolvency) No. 1210 of 2024 which arose out of order dated 03.05.2024 passed by the Adjudicating Authority (National Company Law Tribunal, New Delhi Bench-III), in I.A. No. 1432 of 2022 in C.P. (IB) No. 1348 (ND)/2019.

By the Order dated 03.05.2024(“Impugned Order 1”) passed in I.A. No. 82 of 2022, Hon’ble National Company Law Tribunal(“NCLT”) allowed I.A No. 82 of 2022 filed by RP and placed permanent stay on disconnection of  electricity by NPCL during the moratorium period.

After the passing of the Impugned Order 1, Hon’ble NCLT passed another order dated 03.05.2024 (“Impugned Order 2”)wherein Hon’ble NLCT disposed of the I.A. No. 1432 of 2022 filed by the NPCL.

Impugned Orders which has been passed by Hon’ble NCLT

Observations made by Hon’ble NCLT in Impugned Order inter-alia are as under;-

• NCLT observed that proceedings under the Electricity Laws are in violation of Section 14 read with Section 238 of the Code.
• It is a settled principal of law that once CIRP is initiated and moratorium in terms of Section 14 of the Code is declared, the institution of suits or continuation of pending suits or proceedings against the Corporate Debtor including the execution of any judgement, decree or order in any Court of Law, Tribunal, Arbitration Panel or other authority is prohibited. Therefore, Noida Power Company Limited (“NPCL”) could not have initiated the proceedings as has been done in the present case.
• Moratorium in terms of Section 14 came into force from the date when the CIRP was initiated by Hon’ble NCLT vide it’s Order dated 08.11.2020 and therefore, the NPCL could not have initiated any action and proceeded against the Corporate Debtor in view of the moratorium and the disconnection notice dated 17.12.2021 issued by NPCL is null and void.
• NPCL is directed to not to disconnect the electricity connection of the Real Estate Project of the Corporate Debtor. The Interim Order dated 20.01.2022 passed by the Hon’ble NCLT is self-explanatory and needs no interference because the situation still exists as same.

Chronological list of events which led to filing of present Appeals

• Earthcon Infracon Pvt. Ltd. (being the Corporate Debtor) was admitted into the Corporate Insolvency Resolution Process (“CIRP”)and RP was appointed.
• On 17.06.2020, NPCL issued a notice for temporary disconnection of electricity since there was non-payment of post-CIRP electricity dues. Erstwhile Interim Resolution Professional (“IRP”) filed an I.A No. 3379/2020 before the Hon’ble NCLT  and prayed that  directions be passed that NPCL not to disconnect electricity and giving options to RP to  make payment in instalments.
• On obtaining no response from IRP to the disconnection notice, NPCL sent another disconnection notice on 17.12.2021.
• Thereafter on 28.12.2021, RP filed I.A No. 82 of 2022, wherein he sought a permanent stay on the disconnection notice issued by NPCL.
• On 20.01.2022, NCLT passed an Interim Order in I.A No. 82 of 2022, wherein Hon’ble NCLT directed NPCL not to proceed with disconnection notice dated 17.12.2021.
• On 10.03.2022, NPCL filed I.A No. 1432 of 2022 seeking  vacation of the Interim Order dated 20.01.2022 passed in IA No. 82 of 2022.
• On 14.06.2023, Hon’ble NCLT  directed the RP to collect electricity dues from residents of real estate project of CD and make payments to NPCL within one month.
• Post the order dated 14.06.2023, a set of Home-buyers filed I.A No.1146 of 2022 before the Hon’ble NCLT wherein they  prayed that  directions be issued  to the RP  to not disconnect/interrupt the electricity supply of residents in Real estate project of CD.
• On 14.03.2022, Hon’ble NCLT passed  an Interim Order inter-alia directing home-buyers to pay all pending electricity dues and RP was directed not to take any action for the disconnection of electricity. The Order passed in hearing held on 14.03.2022 was modified  on  14.06.2023 by Hon’ble NCLT. The effect of modification(14.06.2024) was that RP was allowed by Hon’ble NCLT to take coercive steps for non-payment of electricity charges. The Order dated 14.06.2023 was further modified on 14.07.2023 wherein Hon’ble NLCT directed that electricity of the lifts and corridors should not be disconnected and they should be restored.
• Thus, Impugned Order 1 was passed whereby Hon’ble NCLT allowed  I.A No. 82 of 2022, directing the NPCL not to disconnect the electricity connection of the CD and  thereafter, Impugned Order 2 was passed by which Hon’ble NCLT  wherein it disposed of  I.A No. 1432 of 2022.

Questions of Law raised

The Questions of Law raised before the Appellate Tribunal was:-

• Whether NPCL was lawfully entitled to demand the payment of current electricity dues incurred by the CD during the moratorium period and
• Is NPCL entitled to disconnect the electricity connection if the dues were not met

Submissions made by Parties in Appeals

Arguments advanced by Appellant inter-alia were:-

• RP is liable to pay electricity dues which had arisen during the period of CIRP.
• Explanation to Section 14(1) and Section 14(2-A) of IBC provides that all benefits enjoyed by any party which has been given by the government or any authority should be continued subject to the condition that there is no default of payment of current dues.
• Electricity dues are in the nature of “current dues” in terms of Section 14 of IBC and cannot be considered as “Insolvency Resolution Process Costs” under Regulation 31 of the CIRP Regulations and have to be paid by the RP during the period of moratorium.
• Current dues do not come under the ambit of moratorium and therefore have to be paid regularly and failure to pay such dues would entitle the NPCL to disconnect the supply of electricity as the same was not barred under Section 14.
• In this regard, Reliance was placed on judgements of :-
  • Shailesh Verma Vs Maharashtra State Electricity Distribution Company in CA(AT)(Ins) No. 383 of 2022 (“Shailesh Verma Judgement”) (2022) ibclaw.in 677 NCLAT wherein it has been categorically held that electricity dues arising during the CIRP period is mandatorily to be paid by the Corporate Debtor.
  • Executive Engineer Uttar Gujarat VIJ Company Ltd. Vs Mr. Devang P. Sampat RP of M/s Kanoovi Foods Pvt. Ltd, (2021) ibclaw.in 241 NCLAT wherein it has been observed by Hon’ble NCLAT that in case electricity is provided for normal business operations of Corporate Debtor, dues arising thereafter has to be paid during moratorium.
  • Uttarakhand Power Corporation Limited Vs M/s ANG Industries Ltd. (2018) ibclaw.in 122 NCLAT to  wherein Hon’ble NCLAT observed that if electricity dues are not met, the electricity connection was liable to be disconnected.
• Reliance was also placed on judgements of :-
  • Dakshin Gujarat VIJ Company Ltd. Vs M/s ABG Shipyard Ltd. and Anr.       [2018] ibclaw.in 04 NCLAT and Pratap Technocrats Pvt. Ltd. Vs Monitoring Committee of Reliance Infratel Ltd (2021) ibclaw.in 148 SC.
• Arguments advanced by Respondent inter-alia were:-

• • RP has been diligently and continuously paying the consumption charges towards electricity of project of CD.
  • RP would be in a position to pay the outstanding charges of electricity and late payment charges only after collecting the maintenance amount from the residents of real estate project and same was not possible since there is liquidity crunch being faced by the CD in clearing it’s outstanding dues.
  • As per Regulations 31 and 32 of CIRP Regulations, electricity being an “essential supply” forms part of the CIRP costs and could be paid at the time of distribution of CIRP costs to stakeholders. Any Shortfall in the deposit of electricity dues should be considered as CIRP costs.
  • In terms of Section 53 of the Electricity Act, 2003, disconnection of electricity is optional and not mandatory.

Analysis

• Analysis carried out by Hon’ble Appellate Tribunal with respect to subject matter of Appeals are as under:
  • Hon’ble Appellate Tribunal examined the reliefs sought by RP in his  A Nos. 82 and by NPCL in it’s I.A No. 1432 of 2022.
  • That Hon’ble NCLT has failed to appreciate the amendments which were brought in Section 14 of the IBC by Act 1 of 2020. Impugned order is in conflict with the legislative scheme as prescribed in Explanation appended to Section 14(1) and the provision contained in Section 14(2-A). Impugned order has failed in subscribing to the settled position of law laid down in the Shailesh Verma judgment of  this Hon’ble Appellate Tribunal  and  above judgement squarely apply to case.
  • Benefit of electricity supply which is enjoyed by CD given by government or authority should be continued subject to the condition that there is no default of payment of current dues.
  • Section 14(1) and Section 14(2-A) are applicable to present case. Protection granted by Section 14(1) is subject to No default in the payment of current dues as clearly stipulated in the explanatory clause. Section 14(2-A) only prohibits interruption, termination or suspension of any such supply of goods or services to the CD which RP considers critical to protect and preserve the value of the CD and manage the operations of the CD as a going concern but with an exception carved out which provides that in case CD has not paid dues arising from such supply during the period of moratorium.

Observations and Judgement

• The Observations  and judgement rendered by Appellate Tribunal are as under:-
  • In view of analysis done by Hon’ble Appellate Tribunal, Impugned order passed in I.A. No. 82 of 2022 is legally unsustainable and is set-aside. Since the Impugned Order passed in I.A. No. 82 of 2022  is set-aside, Impugned order passed in I.A. No.1432 of 2022 also fails and is set-aside.
  • RP is directed to clear the outstanding electricity dues of the NPCL within 90 days from the date of this order failing which NPCL can proceed to take coercive steps by invoking the applicable law and rules.
  • RP is allowed an opportunity to present a phased payment plan to NPCL in respect of the entire outstanding dues within period of 30 days. NPCL may consider the reasonability of such phased offer of payment and convey their acceptance, rejection or modification of any such offer within 15 days from the date of receipt of such offer to it.
  • d) If the phased offer proposal is rejected by the NPCL, time-line of 90 days from the date of this order for clearing the outstanding payment will hold good.

Conclusion

The Judgement passed by Hon’ble Appellate Tribunal  in the  Company Appeal (AT) (Insolvency) No. 1209 of 2024  and Company Appeal (AT) (Insolvency) No. 1210 of 2024   gave a new facet and dimension to existing jurisprudence of Section 14 of IBC.

Hon’ble Appellate Tribunal in Judgement observed that the protection granted under Section 14(1) of the  IBC is subject to  CD making no default in payment of the current dues as provided under Explanation to Section 14(1) of IBC.

References:

1. (2024) ibclaw.in 607 NCLAT