2017 (12) TMI 1196 - Tri - Insolvency and Bankruptcy

Electricity Company Cannot Disconnect Power During Insolvency Moratorium

ABG Shipyard Ltd. (Through IRP Sundaresh Bhat) And Dakshin Gujrat Vij Company Limited Versus ICICI Bank Ltd. Ors.

The Tribunal held that the Electricity Company cannot disconnect power supply to the Corporate Debtor during the moratorium period under the Insolvency ... Corporate Insolvency Resolution Process - whether Section 14(2) of the Code gives protection to the IRP not to pay for the electricity consumption charges to the Electricity Company pending completion of the CIRP? - Held that:- Section 56 of the Electricity Act, 2003 applies to every citizen of India and whole of India except the State of Jammu and Kashmir. Whoever that failed to pay the electricity consumption charges, even by the highest dignitary in India has to face the interruption of electricity supply under Section 56 of the Electricity Act, 2003. But Insolvency and Bankruptcy Code gives exemption for the Corporate Debtors undergoing CIRP for a particular period, namely the ‘moratorium period’. Therefore, Section 14(2) of the Code must prevail over Section 56 of the Electricity Act, 2003. Therefore, the electricity authorities are not entitled to disconnect the power supply to the Corporate Debtor, M/s. ABG Shipyard Limited, invoking Section 56 of the Electricity Act, 2003. It may be said that it amounts to absolving the Applicant or the Corporate Debtor from paying the electricity consumption charges. But it is not so. The Electricity Company can claim the power consumption charges as an ‘Operational Creditor’ from the assets of the Corporate Debtor on par with other operational creditors based on priorities given in the Code and the Rules and Regulations. Therefore, the Corporate Debtor or the Applicant is not absolved from paying the charges. The claim of the Corporate Debtor to pay the electricity consumption charges shall be taken into account by the Resolution Professional along with other Operational Creditors following the priorities given under the Code, Rules and Regulations. In view of the above discussion, there shall be a direction to the Dakshin Gujarat Vij Company Limited, Piplod Division Office, not to disconnect the power supply to M/s. ABG Shipyard Limited, Surat Unit, during the moratorium period. However, Dakshin Gujarat Vij Company Limited is entitled to make a claim for electricity consumption charges with the Resolution Professional and the Resolution Professional shall receive such claim, and process it along with other Operational Creditors following the priorities given in the Code, Rules and Regulations. Issues Involved:1. Validity of the disconnection notice issued by the Electricity Company.2. Applicability of Section 14(2) of the Insolvency and Bankruptcy Code, 2016 during the moratorium period.3. Conflict between the provisions of the Electricity Act, 2003 and the Insolvency and Bankruptcy Code, 2016.4. Rights and obligations of the Corporate Debtor and the Electricity Company during the CIRP.Issue-wise Detailed Analysis:1. Validity of the Disconnection Notice Issued by the Electricity Company:The Electricity Company issued a disconnection notice on 28.9.2017 for non-payment of the electricity bill for September 2017 by the Corporate Debtor. The notice stated that the electric supply would be disconnected if the outstanding amounts were not paid. The Electricity Company contended that under Section 56 of the Electricity Act, 2003, it had the authority to disconnect the power supply in case of non-payment.2. Applicability of Section 14(2) of the Insolvency and Bankruptcy Code, 2016 During the Moratorium Period:The Resolution Professional argued that under Section 14(2) of the Insolvency and Bankruptcy Code, 2016, the supply of essential goods or services, including electricity, to the Corporate Debtor should not be terminated, suspended, or interrupted during the moratorium period. The Tribunal noted that Section 14(2) clearly states that essential goods or services shall not be terminated or interrupted during the moratorium period to ensure that the Corporate Debtor can continue as a going concern.3. Conflict Between the Provisions of the Electricity Act, 2003 and the Insolvency and Bankruptcy Code, 2016:The Electricity Company argued that the provisions of the Electricity Act, 2003, which allow for disconnection of supply in case of non-payment, have an overriding effect. However, the Tribunal observed that both the Electricity Act, 2003, and the Insolvency and Bankruptcy Code, 2016, are legislations made by Parliament and are part of the Concurrent List. The Tribunal held that when there is a conflict between two Central Acts, the later enactment, in this case, the Insolvency and Bankruptcy Code, 2016, which aims to provide a moratorium period to protect the Corporate Debtor, shall prevail.4. Rights and Obligations of the Corporate Debtor and the Electricity Company During the CIRP:The Tribunal emphasized that the Corporate Debtor is not absolved from paying the electricity consumption charges. The Electricity Company can claim the power consumption charges as an 'Operational Creditor' from the assets of the Corporate Debtor, following the priorities given in the Code and the Rules and Regulations. The Tribunal directed the Electricity Company not to disconnect the power supply during the moratorium period but allowed it to file a claim for the charges with the Resolution Professional.Conclusion:The Tribunal concluded that the electricity authorities are not entitled to disconnect the power supply to the Corporate Debtor during the moratorium period. The Electricity Company can claim the electricity consumption charges as an Operational Creditor. The Application was disposed of with no order as to costs.