2020 (12) TMI 247 - Tri - Insolvency and Bankruptcy

Post-plan approval waiver binds power company; adherence to statutory requirements crucial

The Tribunal held that the waiver of past liabilities after plan approval remains binding, preventing the power distribution company from claiming dues ... Restoration of electricity connections (i) HT Service No. 328 and (ii) HT Service No. 375 issued to M/s. Kalpatru Steel Rolling Mills Ltd. without insisting upon for payment of any past dues and without insisting for any fresh security deposit from the Resolution Applicant - power dues arose before CIRP period - to be paid by the Corporate Debtor/Resolution Applicant to SPDCL or not - HELD THAT:- In IBC, there will be two outcomes, either (1) resolving the company liabilities and give fresh lease of life to company making it free from the past baggage or (2) dissolving company after liquidation of its assets. In both the cases, either giving new life or winding up of a company - either way liabilities of a Company once for all will be determined. So to give such kind of determination, a company cannot be left over with past liabilities, therefore after approval of the Resolution to the company u/s 31 of the Code, the Resolution in respect to the past dues will remain binding over all the stakeholders falling u/s 31 of the Code. So, once plan is approved, the parties upon which the plan is binding, cannot rake up past liabilities by invoking law that is inconsistent with the provisions of the Code - SPDCL cannot make its claim after plan has been approved. Restoration of power supply - HELD THAT:- Since power was disconnected somewhere in 2013 -several years before initiation of CIRP proceedings against this company, the Applicant cannot say that the Resolution Applicant is entitled to restoration of connection of HT service No. 328 and HT service No. 375 of the corporate debtor without making payment of security deposit, because security deposit is a precondition to sanction of High Tension power connection to Industries. Without making such security deposit, giving HT Connection will become in violation of Electricity Act, tomorrow if any problem comes, that security deposit can meet that eventuality provided deposit is there. It cannot be assumed that once plan is approved, corporate debtor is free to violate the laws in existence and this Authority shall grant reliefs blindfolded without looking at noncompliance of other laws. Moreover waiver of past liabilities will not tantamount to freeing the Resolution Applicant from following other laws after approval of plan. Moreover, it is not the case of the applicant that security deposit is still lying with the Department. Waiver is limited to past liabilities, assuming if any concession is granted by this Authority while approving the plan, such concession will come into force to the extent permissible under other laws. It cannot be said that if HT connections are not given, ongoing business will suffer. Here use of power is not something like water and light that is required to have living in the world. It is a business that consumes huge power supply like any other power intensive industry, that being so, unless it is bought like any other raw material, it cannot have manufacturing. The Applicant tried to hold out that electricity is essential part of the Resolution, therefore HT connections shall be restored without being insisted upon to pay security deposit, but one thing the applicant has to understand is, the CIRP period and moratorium ends with the approval of the plan u/s 31 of the Code and the nature of power connection sought in this case does not fall within the category of essential supplies because the usage of power in the industry is not for getting light, which is considered as essential supply to modern living - Thus, it cannot therefore be said that it is like any other renewal approval taken from various departments. It is part of the business, the only difference is this power supply business in some places rests with governments, in some places with private industries. Application disposed off. Issues:1. Application filed by Monitoring Committee for restoration of electricity connections without payment of past dues.2. Dispute over past dues of the company to the power distribution company.3. Interpretation of statutory power supply dues under Electricity Act, 2003.4. Comparison of provisions of SARFAESI Act and IBC regarding overriding effect.5. Waiver of past liabilities after approval of the Resolution Plan.6. Restoration of power supply connections without fresh security deposit.7. Compliance with Electricity Act requirements for security deposit and power supply.Analysis:1. The Monitoring Committee filed an application seeking directions for the immediate restoration of electricity connections without insisting on payment of past dues. The power supply connection was issued to the company in 2008, but due to non-payment, it was disconnected in 2013. The Resolution Plan was approved in 2020 without addressing the dues of the power distribution company.2. The power distribution company claimed past dues after the approval of the Plan, which was rejected citing the waiver of past liabilities upon plan approval. The dispute arose regarding the payment of these dues, with the power distribution company arguing that statutory power supply dues prevail over contractual obligations, relying on a Supreme Court case precedent.3. The power distribution company contended that power dues are statutory and cannot be waived, citing provisions of the Electricity Act, 2003. The argument was based on the premise that statutory dues take precedence over contractual liabilities, and such dues cannot be extinguished upon approval of the Resolution Plan.4. A comparison was drawn between the provisions of the SARFAESI Act and the IBC regarding overriding effect. The argument was made that since the SARFAESI Act's provisions were overridden by the Electricity Act, the same principle should apply to IBC proceedings, emphasizing the importance of statutory dues.5. The Tribunal held that the waiver of past liabilities after plan approval remains binding on all stakeholders, preventing the power distribution company from claiming dues post-approval. The judgment emphasized the distinction between actions under the SARFAESI Act and the IBC, highlighting the different effects on creditors and debtors.6. Regarding the restoration of power supply connections without a fresh security deposit, the Tribunal ruled that security deposit is a prerequisite for high-tension power connections, essential for industries. The Resolution Applicant was not entitled to restoration without complying with the Electricity Act requirements, even after plan approval.7. The judgment highlighted the significance of security deposits for power distribution companies to offset bill shortfalls, emphasizing the necessity of compliance with the Electricity Act. The Tribunal disposed of the application, emphasizing the importance of adhering to statutory requirements even after the approval of the Resolution Plan.