Electricity Being Essential Supply Cannot Be Disconnected During CIRP Period As Per Section 14(2) Of IBC: NCLAT

Brief Facts:

Morarjee Textile Limited (Corporate Debtor) was provided electricity connection by the Maharashtra State Electricity Distribution Company Ltd. (Appellant).

Electricity Bill for the month of January 2024 was raised by the Appellant for unpaid electricity dues. A week later, the corporate debtor was admitted into Corporate Insolvency Resolution Process (CIRP) on an application filed by Axis Bank Limited. The Interim Resolution Professional issued public announcement in pursuance of which the Appellant filed its claims towards unpaid electricity dues.

Subsequently, electricity supply was disconnected by the Appellant when no payment was made by the corporate debtor towards unpaid electricity dues. The electricity connection was restored on the assurances that the dues will be cleared. The supply was against discontinued.

Thereafter, the Resolutional Professional wrote a letter stating that the electricity supply cannot be disconnected during CIRP period as per section 14(2) of the code.

An Interlocutory Application ('IA') was filed by the Resolution Professional praying for various reliefs including directions to restore the electricity supply. On 03.09.2024, the Adjudicating Authority passed an interim order directing the Appellant to restore the electricity supply of the corporate debtor for 15 days.

The Appellant filed a reply to the above application. The Application was allowed. Aggrieved by the impugned order this Appeal has been filed.

Contentions:

The Appellant submitted that the Adjudicating Authority has ignored the mandate of Section 14(2-A) while directing the Appellant to restore the electricity but no direction has been issued regarding payment of electricity dues during the CIRP period.

It was also argued that there is no prohibition or bar imposed by the IBC towards payment of dues arising from essential services supply during CIRP period.

Per contra, the respondents while placing reliance on Regulation 32 of the CIRP Regulations submitted that electricity being identified as essential supply it cannot be disconnected during moratorium period and the Appellant was obliged to continue the electricity of the corporate debtor.

It was also argued that as per Regulation 31, the electricity dues during CIRP period are CIRP costs and Appellant is entitled for CIRP costs in priority as per the provisions of the IBC and the Appellant cannot insist for payment during CIRP period.

Observations:

The Tribunal, while referring to Regulation 32 of the CIRP Regulations, observed that electricity qualifies to be an essential supply unless it is a direct input to output of the corporate debtor.

It further observed that there is nothing on record to establish that electricity is a direct input to the output produced or supplied by the corporate debtor therefore the Electricity supply in the present case has to be treated as essential supply within the meaning of section 14(2) read with Regulation 32 of the CIRP Regulations.

Based on the above, it said that the electricity which is not a direct input to the output produced is essential supply within the meaning of Section 14(2) read with Regulation 32 of the CIRP Regulations and it is clearly covered by the protection extended by legislature under Section 14(2).

The Supreme Court in Sandeep Khaitan, Resolution Professional for National Plywood Industries Limited vs. JSVM Plywood Industries Limited and Anr.(2021) held that Section 14(2A) of the code which was inserted through an amendment effective from December 28, 2019, extends protection to goods and services beyond those already covered under section 14(2) of the code.

The court further observed that the decision, however, under this provision rests with the Interim Resolution Professional or Resolution Professional as the case may be as to which services or goods are essential to preserve and protect the value of the corporate debtor and manage the operations of such corporate debtor as going concern. Once the decision is taken, supply of such services or goods shall not be discontinued or interrupted.

Based on the above, the Tribunal noted that from the above observations of the Supreme Court, it is clear that the scope of section 14(2) and 14(2A) of the code is different.

The NCLAT in 'Shailesh Verma, Resolution Professional of Lavasa Corporation Limited and Ors. vs. Maharashtra State Electricity Distribution Company Ltd. (2022)' held that when the Corporate Debtor has opined that supply of electricity is essential and is to be continued by the Respondent, it is also under obligation to make payment of electricity dues of the CIRP period and direction issued by the Adjudicating Authority to make the payment of outstanding dues, cannot be faulted.

The Tribunal observed that present is a case where Resolution Professional has categorically placed reliance on Section 14(2) and no reliance has been placed on Section 14(2A). The judgment of this Tribunal in “Shailesh Verma” (supra) is distinguishable.

It said that statutory provisions do not contain any prohibition in payment towards supply of essential goods during currency of CIRP. When the corporate debtor runs as a going concern by the resolution professional, it is open for the resolution professional to make such payment as can be made from funds of the corporate debtor.

The Tribunal observed that the Resolution Professional had assured payment for electricity in the above context. It further said that the payment for essential supplies during CIRP is at the discretion of the Resolution Professional when the costs are incurred by the Resolution Professional.

The Tribunal noted that suppliers of essential goods or services cannot terminate or discontinue supply during the moratorium period under section 14 of the code. The corporate debtor is entitled to receive essential supplies even if payment for such services or goods are not made during the currency of the CIRP. The payment for such supplies shall form part of the CIRP costs.

It also observed that the resolution professional, as assured to the appellant, need to take steps to clear the electricity dues, however, non-payment of electricity dues cannot be a ground to discontinue the electricity which is a clear mandate by Section 14(2).

The Tribunal concluded that “the direction of the Adjudicating Authority based on Section 14(2) not to disconnect the electricity connection necessary for running the manufacturing facilities cannot be interfered with.”

Accordingly, the present appeal was dismissed.

Case Title: Maharashtra State Electricity Distribution Company Ltd. & Anr. Versus Ravi Sethia Resolution Professional of Morarjee Textiles Ltd and Ors.

Case Number: 'Company Appeal (AT) (Insolvency) No. 56 of 2025 & I.A. No. 235 of 2025'

Judgment Date:24/02/2025

For Appellant: Mr. Pulkit Doera, Mr. Anup Jain and Ms. Sneha Singh, Advocates.

For Respondents: Mr. J. Rajesh, Mr. Dhrupad Vaghani, Mr. Yashwardhan Agarwal and Mr. Arsalan Ahmed, Advocates.

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