2025 (6) TMI 1973 - HC - IBC

Seeking a mandamus directing the respondent to forthwith provide reconnection of H.T. Services for Unit III - insistence on settlement of the earlier demands - demands anterior to the initiation of CIRP or not - HELD THAT - The National Sewing Thread Pvt ltd. had defaulted in repayment of loans availed from the Indian Overseas Bank (IOB) and had been declared as a Non Performing Asset. IOB had not been successful in recovering the dues through the SARFAESI Act and hence the account had been assigned to the Alchemist Asset Reconstruction Company Ltd vide assignment Deed dated 24.03.2017. The Asset Recovery Company approached the NCLT and CIRP was initiated. The procedure as set out under the Insolvency and Bankruptcy Code 2016 was followed minute details of which are unnecessary for this writ petition. Suffice it to state that the Resolution Plan submitted by B.Venkatesan and B.Ramachandran (Successful Resolution Applicants) was accepted and approved by the Committee of Creditors. The application was filed by the Resolution Professional was allowed by the NCLT on 06.12.2021 and the Resolution Plan proposed was approved - As per the Resolution Plan the Petitioner was to remit 1% of the admitted claims of the creditors in full and final settlement thereof. In other words as against Rs.7, 74, 78, 027/- being the sum total of the admitted statutory dues Rs.7, 74, 780/- was directed to be paid within 90 days in priority and before settlement of the financial creditors. Admittedly the amount has duly remitted the same to the creditors including to the Respondent in time. There is no dispute on this account. The order dated 24.09.2024 is itself misconceived and ought not to have been passed in the light of the judgement in Gyansham Mishra . The Respondent had participated in the resolution process and submitted its claim. The claim has been duly examined by the Resolution Professional and the NCLT has thereafter directed the percentage of payment to be made. The Petitioner has also complied in remitting the amount as directed within the time stipulated - The import of order dated 24.09.2024 where the 2019 demand is reiterated is to efface the RP and the stipulation thereunder to the creditors to receive 1% of the demands in full and final settlement of the same. This is impermissible having regard to the finality attaching to the RP and the judgement of the Supreme Court in Gyansham Mishra 2021 (4) TMI 613 - SUPREME COURT . Admittedly the machinery as well as the equipment for provision of power has been lying idle for many years the same would have to be revamped and all necessary technical concerns be addressed by the parties at the cost of the petitioner. As far as the security deposit is concerned which finds mention in Clause 9.13 we are given to understand by Mr.Sreedhar that in this case the deposit has been adjusted against dues as computed by the Respondent in 2019. It is thus reiterated that the petitioner cannot be called upon to pay anything over and above the amount stipulated in the Resolution Plan and confirmed by the NCLT which amount has admittedly been remitted by it. In Tata Power Western Odisha Distribution Limited (TPWODL) Anr v Jagannath Sponge Private Limited Director 2023 (9) TMI 1071 - SC ORDER the Supreme Court considered the identical issue of whether a Successful Resolution Applicant should be called upon to pay arrears of electricity for grant of electricity connection. Mandamus is issued to the respondent to effect reconnection within a month from the date of completion of all formalities and technical specifications being met by the petitioner as indicated under Clause 19 of the counter only to the extent indicated in this order - petition allowed.

Summary

The core legal questions considered in this judgment revolve around the interplay between the Insolvency and Bankruptcy Code, 2016 (IB Code) and the regulatory framework governing electricity supply, specifically:

• Whether the respondent Electricity Department can insist on payment of outstanding dues beyond the amount stipulated and approved in the Resolution Plan (RP) sanctioned by the National Company Law Tribunal (NCLT) under the IB Code.
• The finality and binding nature of the RP approved by the NCLT on the claims of operational creditors, including statutory authorities like the Electricity Department.
• The applicability of the Joint Electricity Regulatory Commission (JERC) Supply Code, 2018, particularly provisions related to reconnection of electricity supply, in cases where the corporate debtor has undergone Corporate Insolvency Resolution Process (CIRP) and the RP has been approved.
• Whether the Electricity Department's refusal to reconnect electricity supply, based on non-payment of dues exceeding the RP amount and non-compliance with procedural formalities under the JERC Supply Code, is legally sustainable.
• The scope and limits of judicial intervention, specifically the availability of writ jurisdiction to quash the order refusing reconnection and to direct reconnection in accordance with the approved RP and applicable law.

Issue 1: Binding Effect of the Resolution Plan on Claims of Operational Creditors

The legal framework governing this issue is the Insolvency and Bankruptcy Code, 2016, which provides a comprehensive mechanism for insolvency resolution of corporate debtors. Section 31(1) of the Code mandates that once the RP is approved by the adjudicating authority (NCLT), it binds the corporate debtor and all creditors, including operational creditors. The Supreme Court judgment in Ghanashyam Mishra and Sons Pvt Ltd v Edelweiss Asset Reconstruction Company Limited (2021) firmly established that no claim can be raised beyond the amount crystallized and approved in the RP.

The Court observed that the Electricity Department was a statutory operational creditor and had participated in the CIRP by submitting its claim. The NCLT approved the RP directing payment of 1% of the admitted claims as full and final settlement, which the petitioner complied with by timely remittance. The respondent's insistence on payment of the entire outstanding dues, including amounts waived under the RP, was held to be contrary to the finality of the RP and the mandate of the IB Code.

The Court rejected the respondent's argument that the demands were antecedent to the CIRP initiation and hence payable in full, noting that the RP and NCLT order have attained finality and no appeal was filed within the statutory limitation period under Section 61 of the Code. The reiteration of demands in the respondent's order dated 10.09.2024 was declared a nullity in law as it sought to efface the RP and its binding effect.

Issue 2: Applicability of JERC Supply Code, 2018 on Reconnection Post CIRP

The respondent relied on clauses 9.12 and 9.13 of the JERC Supply Code, 2018, which regulate reconnection of electricity supply. Clause 9.12 requires reconnection within five days upon payment of past dues and reconnection charges if requested within six months of disconnection. Clause 9.13 mandates that reconnection after six months requires compliance with all formalities applicable to a new connection, including payment of pending dues, service line charges, and security deposit.

The Court distinguished the present case from ordinary reconnection scenarios, holding that these regulations cannot be applied mutatis mutandis where the corporate debtor has undergone CIRP and the RP approved by the NCLT stipulates the quantum of dues payable. The petitioner cannot be compelled to pay any amount beyond what is approved in the RP, including pending dues or security deposits adjusted against dues prior to the CIRP.

While the Court acknowledged the respondent's concerns regarding the machinery and equipment lying idle and the need for technical compliance before reconnection, it held that such requirements must be fulfilled by the petitioner but cannot include payment of arrears beyond the RP amount.

Issue 3: Jurisdiction and Scope of Relief for Reconnection

The respondent contended that the NCLT lacks jurisdiction to direct reconnection, citing the Supreme Court judgment in Gujarat Urja Vikas Nigam Limited v Amit Gupta & Others, which held that the NCLT's jurisdiction is confined to insolvency matters and does not extend to directions for reconnection.

The Court clarified that the present writ petition is not seeking directions from the NCLT but is a collateral proceeding arising from compliance with the RP. The relief sought is a mandamus directing the respondent to reconnect electricity supply in accordance with the RP and applicable regulations, which is within the writ jurisdiction of the High Court.

Issue 4: Treatment of Competing Arguments and Final Conclusions

The respondent's argument that the petitioner had not complied with all procedural formalities and that the machinery was inoperative was accepted to the extent that the petitioner must fulfill technical and safety requirements before reconnection. However, the insistence on payment of arrears beyond the RP was rejected.

The Court relied on the Supreme Court's recent decisions in Tata Power Western Odisha Distribution Limited v Jagannath Sponge Private Limited and related cases, which affirmed the principle that successful resolution applicants cannot be saddled with arrears of electricity dues beyond the RP amount for grant of electricity connection. The "clean slate" principle under the IB Code was emphasized, preventing operational creditors from demanding amounts exceeding the RP.

The Court held the order dated 10.09.2024 refusing reconnection on grounds of non-payment of excess dues as legally unsustainable and quashed it by way of certiorari. It directed the respondent to effect reconnection within one month upon completion of all necessary formalities and technical specifications by the petitioner, excluding any payment of arrears beyond the RP amount.

Significant Holdings:

"Upon approval of the Resolution Plan by the Hon'ble Adjudicating Authority, Old outstanding or due amount for license renewal / consent fee / land & building tax including payment of penalty and damages, if any, payable by the CD to the respective (Tamil Nadu / Pondicherry) State Electricity Department ... shall be deemed to have been waived / written off/ extinguished and no amount shall be payable to the said departments by the Corporate Debtor."

"Once a Resolution Plan has been duly approved by the adjudicating authority, no further claim may be raised by the creditor, over and above the amount crystallised under the RP and approved by the Tribunal."

"The insistence upon the earlier demands raised in 2019 and reiterated on 10.09.2024, is grossly misconceived."

"The pre-condition for reconnection under Clause 9.13 of the 2018 Regulations for 'payment of pending dues' would not arise or stand attracted in such cases where the Resolution Plan has been approved."

"The electricity board cannot ask for payment of arrears, or anything the amount computed in the approved Resolution Plan. However, the successful resolution applicant will have to comply with the other requirements for grant of electricity connection."

"The writ petition is maintainable and the order dated 10.09.2024 is a nullity in law."

In conclusion, the Court firmly established that the RP approved under the IB Code has overriding effect on claims of operational creditors, including statutory authorities such as electricity departments. The principle of finality of the RP prevents creditors from demanding amounts beyond the approved quantum. Reconnection of electricity supply post-CIRP must be granted upon compliance with technical and procedural requirements, but not on payment of arrears exceeding the RP. The writ jurisdiction of the High Court extends to quashing orders inconsistent with the RP and directing reconnection accordingly.