OPERATIONAL CREDITOR TO BE PAID AS PER RESOLUTION ONLY

[Dr. Sanjiv Agarwal]

In one of the recent pronouncements, Supreme Court of India has held that electricity suppliers are operational creditors and as such, dues of operational creditors have to be paid in the manner prescribed and approved in the resolution plan.  The operational cannot insist on payment of arrears of corporate debtor to enable grant of or restoration of electricity connection. [TATA POWER WESTERN ODISHA DISTRIBUTION LIMITED (TPWODL) & ANR. VERSUS JAGANNATH SPONGE PRIVATE LIMITED DIRECTOR - 2023 (9) TMI 1071 - SC ORDER].

Relevant Statutory Provisions

Following statutory provisions of Insolvency and Bankruptcy Code, 2016 (in short, IBC) are relevant in this regard:

Operational Creditor [Section 5(20)]

‘Operational creditor’ means a person to whom an operational debt is owed and includes any person to whom such debt has been legally assigned or transferred.

Operational Debt [Section 5(21)]

‘Operational debt’ means a claim in respect of the provision of goods or services including employment or a debt in respect of the ⁶[payment] of dues arising under any law for the time being in force and payable to the Central Government, any State Government or any local authority.

Adjudicating Authority for Corporate Persons [Section 60(5)]

Notwithstanding anything to the contrary contained in any other law for the time being in force, the National Company Law Tribunal shall have jurisdiction to entertain or dispose of-

1. any application or proceeding by or against the corporate debtor or corporate person;
2. any claim made by or against the corporate debtor or corporate person, including claims by or against any of its subsidiaries situated in India; and
3. any question of priorities or any question of law or facts, arising out of or in relation to the insolvency resolution or liquidation proceedings of the corporate debtor or corporate person under this Code.

Appeal to Supreme Court [Section 62]

1. 1. Any person aggrieved by an order of the National Company Law Appellate Tribunal may file an appeal to the Supreme Court on a question of law arising out of such order under this Code within forty-five days from the date of receipt of such order.
2. 2. The Supreme Court may, if it is satisfied that a person was prevented by sufficient cause from filing an appeal within forty-five days, allow the appeal to be filed within a further period not exceeding fifteen days.

Brief Facts / Events

An application was filed under section 7 against the Corporate Debtor (Jagannath Sponge Pvt. Ltd.) which was adjudicated by NCLT, New Delhi and the resolution plan duly approved by the Adjudicating Authority.

The successful resolution applicant filed an application before the NCLT to give direction to electricity supplier to provide electricity connection and set aside the demand of arrears of electricity dues. The adjudicating authority took a view that Resolution Plan having been approved which is binding, the claim of arrears by Appellant against the successful resolution applicant is not valid. The Adjudicating Authority noted that the Appellant did not file any claim in the Insolvency Resolution Process of the Corporate Debtor. It therefore, directed as follows:

“The amount of Rs. 13,46,19,931/- claimed by the respondents in their impugned letter dated 8-12-2022 addressed to applicant is not valid and not enforceable as against the corporate debtor/successful resolution applicant.

The respondent is directed to consider the service connection application of the applicant submitted by the successful resolution applicant or any other person on its behalf,  in accordance with the code/regulation without insisting to make any payment/arrears in whatever nature payable by the corporate debtor prior to 6-8-2021.”

Being aggrieved, the electricity supplier, operational creditor filed an appeal before NCLAT, New Delhi. The NCLAT noted that there is no dispute to the fact that Appellant did not file any claim  of  its Pre-CIRP dues of Rs. 13,46,19,931/-.

Relying upon judgment of GHANASHYAM MISHRA AND SONS PRIVATE LIMITED THROUGH THE AUTHORIZED SIGNATORY VERSUS EDELWEISS ASSET RECONSTRUCTION COMPANY LIMITED THROUGH THE DIRECTOR & ORS. - 2021 (4) TMI 613 - SUPREME COURT, the NCLAT dismissed the appeal, being devoid of merit [TATA POWER WESTERN ODISHA DISTRIBUTION LIMITED (TPWODL) & ANR. VERSUS JAGANNATH SPONGE PRIVATE LIMITED DIRECTOR - 2023 (9) TMI 1071 - SC ORDER] .

Before Supreme Court

Being aggrieved, appeal was preferred before Supreme Court. The Apex Court relied upon Embassy Property ruling by Supreme Court in M/S EMBASSY PROPERTY DEVELOPMENTS PVT. LTD. VERSUS STATE OF KARNATAKA & OTHERS - 2019 (12) TMI 188 - SUPREME COURT where the Supreme Court clarified that a decision by public authority etc. may fall within the jurisdiction of the tribunals constituted under the Code, where the issue relates to or arises out of the dues payable to an operational or financial creditor.

This would confer jurisdiction on the Tribunal constituted under the IBC Code insofar as the appellant, Tata Power Western Odisha Distribution Limited was 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 was approved when it was in accord with the provision of the Code. Thus, the issue of corporate debtor’s dues fell within the fold of the phrase ‘arising out of or in relation to insolvency resolution’ under section 60(5)(c) of the IBC Code.

The court also noted that the legal issue is covered by the judgment of Supreme Court in PASCHIMANCHAL VIDYUT VITRAN NIGAM LTD. VERSUS RAMAN ISPAT PRIVATE LIMITED & ORS. - 2023 (7) TMI 831 - SUPREME COURT and the order of this Court in SOUTHERN POWER DISTRIBUTION COMPANY OF ANDHRA PRADESH LIMITED VERSUS GAVI SIDDESWARA STEELS (INDIA) PVT. LTD. AND ANOTHER - 2023 (9) TMI 664 - SC ORDER The appellant, Tata Power Western Odisha Distribution Limited 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 will have to comply with the other requirements for grant of electricity connection. 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.

In view of above, Apex Court did not find any good reason to interfere, on merits, and dismissed the appeal to establish that operational creditor cannot stake a claim after approval of the resolution plan and that dues of corporate debtor have to be paid as per resolution plan only.