2022 (3) TMI 999 - HC - Insolvency and Bankruptcy

Court directs utility company to restore power connection without past dues payment after approval of Resolution Plan.

The court allowed the writ petition, directing WBSEDCL to restore the electricity connection to the petitioner no. 1-company upon payment of reconnection ... Restoration of their electricity connection - disconnection by the respondent-distribution licensee on November 29, 2014 because of non-payment of electricity dues by the petitioner - HELD THAT:- Upon a consideration of the law on the subject, it is amply clear that Section 56 of the Electricity Act, 2003 confers power on the licensee to cut off the supply of electricity and for that purpose cut off or disconnect any electric supply line or other works being the property of such license through which electricity may have been supplied, transmitted, distributed or wheeled and may discontinue the supply until such charge or other sum, together with any expenses incurred by him in cutting off and reconnecting the supply, are paid. The IBC, in its scheme, contemplates a Corporate Insolvency Resolution Proceeding (CIRP), where a resolution plan is submitted which, after passing through the scrutiny of the Resolution Professional and Committee of Creditors, is submitted to the Adjudicating Authority (NCLT). Under Section 31 (1) of the IBC, upon approval by the Adjudicating Authority, the resolution plan becomes binding on the Corporate Debtor and its employees, members, creditors, guarantors and other stakeholders involved in the resolution plan - Section 238 of the IBC stipulates that the provisions of the Code shall have effect, notwithstanding anything inconsistent therewith contained in any other law for the time being in force or any instrument having effect by virtue of any such law. There cannot be any doubt that the WBSEDCL, discharging the function of the State, comes within the purview of ‘State’ under Article 12 of the Constitution of India. The State Government is the executive authority through which the State primarily discharges its functions under the law. Hence, dues payable to the WBSEDCL squarely fall within the ambit of “operational debt” as defined under the IBC. Hence, the provisions of the IBC are attracted to dues payable to the WBSEDCL - Admittedly, in the present case, the electric supply of the petitioner no. 1-company was cut off by the WBSEDCL on November 29, 2014, for non-payment of electricity charges. For restoring such connection, the licensee, under Section 56 (1) of the 2003 Act, can claim as a precondition the payment of such charge and other sum, together with any expenses incurred by the licensee in cutting off and reconnecting the supply. The only reasonable conclusion which can be reached in the instant case is that the WBSEDCL is duty-bound to restore the electric connection of the petitioner no.1-company immediately upon the petitioner no.1 making payment of reconnection charges to the WBSEDCL - direction to WBSEDCL to restore electric supply to the petitioner no. 1, subject to the petitioner no. 1 paying only the reconnection charges, as expeditiously as possible, preferably within a fortnight from after the deposit of such charges. Application allowed. Issues Involved:1. Restoration of electricity connection.2. Relevance of documents filed by WBSEDCL.3. Impact of Corporate Insolvency Resolution Process (CIRP) on electricity dues.4. Extinguishment of claims not included in the Resolution Plan.5. Applicability of Section 56 of the Electricity Act, 2003.6. Rights and obligations under the agreement between the petitioner and WBSEDCL.7. Conflict between the IBC and Electricity Act, 2003.8. Binding nature of the Resolution Plan.9. Alternative remedies available under Section 60(5) of the IBC.Detailed Analysis:Restoration of Electricity Connection:The petitioners sought restoration of their electricity connection, disconnected on November 29, 2014, due to non-payment of dues. The court directed WBSEDCL to restore the electricity supply to the petitioner no. 1-company upon payment of reconnection charges, emphasizing that previous dues stood extinguished by the approved Resolution Plan.Relevance of Documents Filed by WBSEDCL:The petitioners contended that the documents filed by WBSEDCL were irrelevant. The court did not find these documents crucial to the determination of the case.Impact of CIRP on Electricity Dues:The petitioners argued that the CIRP initiated under the IBC resulted in the extinguishment of all dues upon the approval of the Resolution Plan by the NCLT. The court agreed, citing Section 31(1) of the IBC and relevant Supreme Court judgments, including Ghanashyam Mishra and Sons Private Limited Vs. Edelweiss Asset Reconstruction Company Limited, which held that claims not part of the Resolution Plan are extinguished.Extinguishment of Claims Not Included in the Resolution Plan:The court reiterated the 'Clean Slate' theory, emphasizing that all claims not included in the Resolution Plan are extinguished. This principle was supported by judgments in Ghanashyam Mishra and Sons Private Limited and M/s Ruchi Soya Industries Ltd. Vs. Union of India & ors.Applicability of Section 56 of the Electricity Act, 2003:Section 56 of the Electricity Act, 2003, allows disconnection for non-payment of dues. However, the court noted that once the Resolution Plan is approved, the company starts on a 'clean slate,' meaning all previous debts are extinguished, rendering the disconnection right illusory.Rights and Obligations Under the Agreement Between the Petitioner and WBSEDCL:The agreement between the petitioner and WBSEDCL, dated November 15, 1997, was governed by the Electricity Act, 1910, and the Electricity Supply Act, 1940, which were repealed by the 2003 Act. The court found that the rights and obligations under the agreement, particularly concerning disconnection and reconnection, were aligned with Section 56(1) of the 2003 Act.Conflict Between the IBC and Electricity Act, 2003:The court addressed the potential conflict between the IBC and the Electricity Act, 2003. It held that Section 238 of the IBC, which gives the IBC precedence over other laws in case of inconsistency, applied. Therefore, the extinguishment of dues under the IBC took precedence over the rights under the Electricity Act.Binding Nature of the Resolution Plan:The court affirmed that the Resolution Plan approved by the NCLT is binding on all stakeholders, including creditors like WBSEDCL. This binding nature extinguishes all previous claims, including those for electricity dues.Alternative Remedies Available Under Section 60(5) of the IBC:The court noted that the availability of alternative remedies under Section 60(5) of the IBC should be considered. However, it proceeded to grant relief to the petitioners, directing the restoration of electricity connection.Conclusion:The court allowed the writ petition, directing WBSEDCL to restore the electricity connection to the petitioner no. 1-company upon payment of reconnection charges, without insisting on the payment of past dues, which were extinguished by the approved Resolution Plan. The court emphasized the binding nature of the Resolution Plan and the precedence of the IBC over other laws in case of inconsistency.