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PAYMENT OF ELECTRICITY BILLS DURING MORATORIUM

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PAYMENT OF ELECTRICITY BILLS DURING MORATORIUM
By: Mr. M. GOVINDARAJAN
August 3, 2021
All Articles by: Mr. M. GOVINDARAJAN       View Profile
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Moratorium

Section 14(1) of the Code provides that on the insolvency commencement date, the Adjudicating Authority shall by order declare moratorium for prohibiting all of the following, namely: -

  1. the institution of suits or continuation of pending suits or proceedings against the corporate debtor including execution of any judgment, decree or order in any court of law, tribunal, arbitration panel or other authority;
  2. transferring, encumbering, alienating or disposing of by the corporate debtor any of its assets or any legal right or beneficial interest therein;
  3. any action to foreclose, recover or enforce any security interest created by the corporate debtor in respect of its property including any action under the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002;
  4. the recovery of any property by an owner or lessor where such property is occupied by or in the possession of the corporate debtor.

The explanation to this section clarified that notwithstanding anything contained in any other law for the time being in force, a license, permit, registration, quota, concession, clearances or a similar grant or right given by the Central Government, State Government, local authority, sectoral regulator or any other authority constituted under any other law for the time being in force, shall not be suspended or terminated on the grounds of insolvency, subject to the condition that there is no default in payment of current dues arising for the use or continuation of the license, permit, registration, quota, concession, clearances or a similar grant or right during the moratorium period.

Section 14(2) of the Code provides that the supply of essential goods or services to the corporate debtor as may be specified shall not be terminated or suspended or interrupted during moratorium period.

Section 14(2A) of the Code provides that where the interim resolution professional or resolution professional, as the case may be, considers the supply of goods or services critical to protect and preserve the value of the corporate debtor and manage the operations of such corporate debtor as a going concern, then the supply of such goods or services shall not be terminated, suspended or interrupted during the period of moratorium, except where such corporate debtor has not paid dues arising from such supply during the moratorium period or in such circumstances as may be specified;

Section 14(3) of the code provides that the provisions of sub-section (1) shall not apply to-

  1. such transactions, agreements or other arrangements as may be notified by the Central Government in consultation with any financial sector regulator or any other authority;
  2. a surety in a contract of guarantee to a corporate debtor.

According to Section 14(4) the order of moratorium shall have effect from the date of such order till the completion of the corporate insolvency resolution process.  Where at any time during the corporate insolvency resolution process period, if the Adjudicating Authority approves the resolution plan under sub-section (1) of section 31 or passes an order for liquidation of corporate debtor under section 33, the moratorium shall cease to have effect from the date of such approval or liquidation order, as the case may be. 

Essential supplies

The essential goods and services referred to in Section 14(2) shall mean-

  1. Electricity;
  2. Water;
  3. Telecommunication services; and
  4. Information technology services,

to the extent these are not a direct input to the output produced or supplied by the corporate debtor.

Illustration: Water supplied to a corporate debtor will be essential supplies for drinking and sanitation purposes, and not for generation of hydro-electricity.

Payment of Electricity bills

The Electricity Department uses to collect the electricity bill amounts within the date stipulated otherwise the connection will be disconnected.  What will be the fate to the electricity bill for the company under in corporate insolvency resolution process?  Once the application for initiation of corporate insolvency resolution process is admitted the Adjudicating Authority declared moratorium.  Electricity, being one of the essential supplies, is exempted from moratorium.  Whether the electricity bills may be recovered from the corporate debtor during the moratorium period?

In EXECUTIVE ENGINEER UTTAR GUJRAT VIJ COMPANY LTD. VERSUS MR. DEVANG P SAMAPAT RP OF M/S. KANOOVI FOODS PVT. LTD. - 2021 (5) TMI 912 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL , PRINCIPAL BENCH, NEW DELHI the two appeals have been filed by the Appellant being aggrieved by two orders passed by the Adjudicating Authority.  In the first impugned order dated 21.10.2020 the Adjudicating Authority held that Application is filed for recovery of electricity charges during Corporate Insolvency Resolution Process. It is Corporate Insolvency Resolution Process Cost which shall be considered at time of considering the resolution plan, if any or at the time of process of liquidation of the Corporate Debtor. At this stage, this application is not maintainable.

In the second impugned order dated 02.12.2020, the Adjudicating Authority held that the Adjudicating Authority does not have jurisdiction to review its own order under Rule 11 of NCLT Rules.   The Applicant is at liberty to file appeal if they are aggrieved by such order.

The appellant submitted the following before the Appellate Tribunal-

  • The Appellant was entitled to recover electricity charges being incurred by the Corporate Debtor on month to month basis after the Corporate Insolvency Resolution Process was initiated against the Corporate Debtor.
  • The same should have been paid but were not paid.
  • it is erroneous on the part of the Adjudicating Authority to refer in the Order dated 21st October, 2020 that Application claiming recovery of electricity charges during Corporate Insolvency Resolution Process is not maintainable.
  • As per sub-section 2A of Section 14, the Appellant was entitled to recover the electricity charges which have been held to be essential services.
  • The Resolution Professional who was managing the Corporate Debtor was using the electricity for running of the office and other expenses.

The Liquidator submitted that he was also the Resolution Professional and consumption of electricity which has been done was only with regard to the running of office during the Corporate Insolvency Resolution Process period and was for the security and essential purposes only and that it was not for manufacturing purposes.

The Appellate Tribunal observed that if the electricity consumption was for manufacturing and output of the Biscuits which is the normal operation of the Corporate Debtor, in that case dues arising from such supply of electricity during moratorium would have to be paid during moratorium.    If the supply is for managing the operations of the Corporate Debtor the supply cannot be interrupted during moratorium except where Corporate Debtor has not paid dues arising from such supply during the moratorium period.  In the present appeal the consumption is stated to have been for running of office and security of Corporate Debtor which will be part of the Corporate Insolvency Resolution Process Costs which can be recovered when the Resolution Plan is approved or would form part of Section 53 if the Liquidation has been initiated.

The Appellate Tribunal upheld the order of Adjudicating Authority observing that the electricity charges during Corporate Insolvency Resolution Process would form part of Corporate Insolvency Resolution Process Costs that may be payable from the approval resolution plan. 

The order implies that the electricity charge during moratorium is not payable timely basis.  It would form Corporate Insolvency Resolution Process costs and payable at the time of disposal made by the resolution applicant but at the same time the electricity connection shall not be disconnected during the moratorium period.  The following are to be considered-

  • Whether the Electricity Board is to submit the claims of electricity bills to the Resolution Professional periodically as per bill dates?
  • Whether the Resolution Professional will admit such claim in entirety?
  • Whether priority will be given to the payment in respect of Essential Supplies?

 

By: Mr. M. GOVINDARAJAN - August 3, 2021

 

 

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