2021 (5) TMI 912 - AT - Insolvency and Bankruptcy

Appellate Tribunal Upholds Inclusion of Electricity Charges in CIRP Costs

Executive Engineer Uttar Gujrat VIJ Company Ltd. Versus Mr. Devang P Samapat RP of M/s. Kanoovi Foods Pvt. Ltd.

The Appellate Tribunal upheld the Adjudicating Authority's decision that electricity charges incurred during the Corporate Insolvency Resolution Process ... Recovery of electricity charges during CIRP - Whether the Appellant was entitled to recover electricity charges being incurred by the Corporate Debtor on month to month basis after the CIRP was initiated against the Corporate Debtor? - HELD THAT:- Regulation 32 makes the distinction clear. 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 - In present matter the consumption is stated to have been for running of office and security of Corporate Debtor. In that case, the same will be part of the CIRP 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 electricity charges during CIRP would form part of CIRP Costs - Appeal disposed off. Issues:1. Recovery of electricity charges during CIRP period.2. Jurisdiction of Adjudicating Authority to review its own order under Rule 11 of NCLT Rules.3. Interpretation of Section 14 of IBC regarding moratorium and essential services.4. Distinction between essential supplies for manufacturing purposes and general operational purposes.Analysis:1. Recovery of Electricity Charges during CIRP Period:The Appellant filed an appeal against two orders passed by the Adjudicating Authority regarding the recovery of electricity charges during the Corporate Insolvency Resolution Process (CIRP) period. The Adjudicating Authority initially ruled that the application for recovery of electricity charges was not maintainable at that stage. The Appellant argued that they were entitled to recover these charges as they were essential services under Section 14(2A) of the Insolvency and Bankruptcy Code (IBC). However, it was noted that the consumption of electricity during CIRP was for office running and security purposes, not manufacturing, making it part of CIRP costs recoverable during the resolution plan approval or liquidation.2. Jurisdiction of Adjudicating Authority to Review Orders:The Appellant filed another application for review of the Adjudicating Authority's order, but the Authority held that it did not have the jurisdiction to review its own order under Rule 11 of the NCLT Rules. The Appellant was advised to file an appeal if aggrieved by the order. The matter was scheduled for further consideration on a later date.3. Interpretation of Section 14 of IBC - Moratorium and Essential Services:Section 14 of the IBC imposes a moratorium on certain actions upon insolvency commencement, including the supply of essential goods or services to the corporate debtor. Sub-section 2A of Section 14 specifies that critical goods or services necessary for preserving the value of the corporate debtor and managing its operations as a going concern cannot be terminated during the moratorium period. The provision clarifies that dues arising from such supplies must be paid during the moratorium unless specified otherwise.4. Distinction between Essential Supplies for Manufacturing and Operational Purposes:Regulation 32 of the CIRP Regulations defines essential supplies to include electricity, among others, which are not direct inputs to the output produced by the corporate debtor. The illustration provided in the regulation clarifies that if electricity consumption is for manufacturing purposes, dues must be paid during the moratorium. However, in cases where consumption is for general operational purposes like office running and security, it constitutes CIRP costs and can be recovered during the resolution plan approval or liquidation.In conclusion, the Appellate Tribunal upheld the Adjudicating Authority's orders, stating that electricity charges during CIRP would indeed form part of CIRP costs in this scenario, and therefore, the appeal was declined.