2015 (3) TMI 508 - HC - Companies Law

Electricity charges in liquidation: Not secured debts but statutory dues under Companies Act. Priority order clarified.

The court clarified that electricity charges incurred for property protection during liquidation proceedings are not considered secured debts but ... Company in liquidation - Status of Electricity dues - Statutory dues under Section 529 and 529A of the Companies Act,1956 - Held that:- It is, thus, clear that the amounts paid or payable towards maintenance and other allied expenses, necessary to keep the asset or assets in good repair or protect them, cannot be characterized as secured debts so as to be covered by Section 529A. They are undoubtedly expenses within the meaning of Section 476. In the present case, the impugned order of the Single Judge left the actual determination of the amounts to the official liquidator. This Court does not propose to alter that direction; however, it is open to the PSPCL and all other parties to urge such contentions as are available to them in respect of the charges claimed by the former. It is submitted by PSPCL that the dues payable for the disputed period are not only in respect of electricity charges of actual consumption, but also charges recoverable on account of services and monthly minimum charges and “wheeling charges”, without which such services cannot be made available to the individual unit, as in the case of the factory in question. The Official Liquidator (OL) shall go into these rival contentions and decide the issue having regard to the submissions made as to whether any apportionment is to be made between the various respondents and if so, to what extent. -The appeal is allowed in the above terms. The PSPCL shall file its comprehensive claim with respect to the amounts to be paid for the disputed period i.e. January, 2009 to January, 2013 within six weeks from today, before the official liquidator. Issues:1. Treatment of electricity dues as statutory dues under Companies Act, 1956.2. Priority of payment of electricity charges in winding up proceedings.3. Interpretation of Sections 476 and 529A of the Companies Act.4. Role of the official liquidator in determining payment obligations.Analysis:Issue 1: Treatment of electricity dues as statutory dues under Companies Act, 1956The appellant, Punjab State Power Corporation Limited (PSPCL), challenged the judgment regarding the payment of electricity charges during the period the premises were under the control of the first respondent (CBIL) in liquidation proceedings. The dispute arose post restoration of electricity on 16.12.2008, with CBIL seeking urgent orders for restoration. The court emphasized the importance of distinguishing between statutory dues and secured debts, highlighting that electricity charges incurred due to court orders for property protection cannot be treated as secured debts.Issue 2: Priority of payment of electricity charges in winding up proceedingsThe court analyzed the nature of expenses in winding up proceedings as per Section 476 of the Companies Act. It clarified that costs, charges, and expenses incurred in winding up follow a specific order of priority distinct from secured debts under Section 529A. The court referred to precedents like M/s. Voltas Ltd. v. Allwyn Auto Ltd. to establish that expenses for maintenance and asset protection are not secured debts but fall under the purview of Section 476.Issue 3: Interpretation of Sections 476 and 529A of the Companies ActThe court delved into the provisions of Sections 476 and 529A, emphasizing the distinct treatment of costs and expenses in winding up proceedings. It cited legal precedents to support the argument that expenses related to asset maintenance and protection, including electricity charges, are covered under Section 476 and do not qualify as secured debts under Section 529A.Issue 4: Role of the official liquidator in determining payment obligationsThe court acknowledged the role of the official liquidator in deciding the actual amounts payable for electricity charges during the disputed period. It directed PSPCL to file a comprehensive claim within a specified timeframe, allowing the official liquidator to assess the merits of the claim in accordance with the law. The court maintained that all contentions of the parties regarding the payment obligations were to be kept open for further consideration by the official liquidator.Overall, the judgment clarified the distinction between statutory dues and secured debts in winding up proceedings, highlighting the specific order of priority for payment of expenses as per the Companies Act. It underscored the role of the official liquidator in determining the actual amounts payable, providing a framework for resolving the dispute over electricity charges effectively.