2022 (7) TMI 580 - HC - Insolvency and Bankruptcy

Appellant's Right to Recover Past Dues Extinguished upon Approval of Resolution Plan under IBC

West Bengal State Electricity Distribution Company Limited Versus Sri Vasavi Industries Limited and Another

The court held that the appellant's right to recover past dues was extinguished upon the approval of the resolution plan under the Insolvency and ... CIRP - validity of direction to restore the electricity supply to the respondent no. 1 herein (writ petitioner) only on the reconnection charges without insisting upon deposit of its previous claims or past dues of electricity and other charges which had resulted into disconnection - resolution plan already approved - in the resolution plan, the relief relating to grant of power connection was not allowed - HELD THAT:- Hon’ble Supreme Court in the matter of Ghanashyam Mishra [2021 (4) TMI 613 - SUPREME COURT] has considered the scope of Section 31(1) of the IBC and has held that once the resolution plan is sanctioned under Section 31(1) of the IBC, the claims provided in the plan will stand frozen and all such claims which are not part of the plan will stand extinguished. In the matter of Committee of Creditors of Essar Steel India Limited [2019 (11) TMI 731 - SUPREME COURT], Hon’ble Supreme Court has expressed that a successful resolution application cannot be faced with undecided claim after the resolution plan is accepted as this would amount to a hydra head popping up, leading to the uncertainty of amounts payable by a prospective resolution applicant. It is undisputed before this Court that the claim of the appellant to recover the earlier dues of about Rs. 25 crores as against the respondent no. 1 does not survive. As per the judicial pronouncement noted on the facts of this case, such a claim extinguishes on approval of resolution plan. Section 43 of the Electricity Act, 2003 casts a duty upon the distribution licensee to supply electricity on request - Having due regard to the provision of Section 43, it is not open to the appellant to contend that though the earlier dues are not recoverable from the respondent no. 1, yet, the appellant will not supply electricity to the respondent. The counsel for respondent no. 1 has made it clear before this Court that it is ready to pay the fresh connection/reconnection charges to the appellant. The right of the appellant to recover the amount which was due prior to the resolution plan had extinguished on the approval of the resolution plan. The appellant is now required to provide the electricity connection to the respondent in terms of the Electricity Act, 2003, hence, learned Single Judge has not committed any error in allowing the writ petition and issuing requisite direction in this regard - Appeal dismissed. Issues Involved:1. Restoration of electricity supply without payment of past dues.2. Overriding effect of Insolvency and Bankruptcy Code (IBC) on other laws.3. Binding nature of the resolution plan approved by the National Company Law Tribunal (NCLT).4. Applicability of the West Bengal Electricity Regulatory Commission (Electricity Supply Code) Regulation, 2013.5. Duty to supply electricity under Section 43 of the Electricity Act, 2003.Detailed Analysis:1. Restoration of Electricity Supply Without Payment of Past Dues:The appellant, an Electricity Distribution Company, challenged the order directing it to restore electricity supply to the respondent (an ISO 9001 certified company) without insisting on payment of past dues. The learned Single Judge found that the dues payable to the appellant fell under 'operational debt' as defined by the IBC and were extinguished by the operation of Section 31(1) of the IBC upon approval of the resolution plan by the NCLT.2. Overriding Effect of Insolvency and Bankruptcy Code (IBC) on Other Laws:Section 238 of the IBC provides that the provisions of the IBC shall have effect notwithstanding anything inconsistent contained in any other law. The learned Single Judge noted that the resolution plan approved by the NCLT becomes binding on all stakeholders, including creditors, and extinguishes all claims not part of the resolution plan. The Supreme Court's judgments in Ghanashyam Mishra and Sons Private Limited and Committee of Creditors of Essar Steel India Limited reaffirmed that all claims not included in the resolution plan are extinguished upon its approval.3. Binding Nature of the Resolution Plan Approved by the National Company Law Tribunal (NCLT):The resolution plan approved by the NCLT on 10th November 2021 became binding on the corporate debtor and all stakeholders, including the appellant. The appellant's claim of Rs. 25 crores, which was not submitted during the CIRP, stood extinguished. The Supreme Court's judgment in Ruchi Soya Industries Ltd. confirmed that claims not part of the resolution plan do not survive post-approval.4. Applicability of the West Bengal Electricity Regulatory Commission (Electricity Supply Code) Regulation, 2013:The appellant relied on clauses of the West Bengal Electricity Regulatory Commission (Electricity Supply Code) Regulation, 2013, which required payment of outstanding dues for new service connections. However, the court found these regulations inapplicable as they conflicted with the IBC's provisions and the Supreme Court's judgments, which held that the IBC prevails over state regulations.5. Duty to Supply Electricity Under Section 43 of the Electricity Act, 2003:Section 43 of the Electricity Act, 2003, mandates that every distribution licensee must supply electricity upon request. The court noted that despite the extinguishment of past dues, the appellant has a statutory duty to provide electricity to the respondent. The respondent was willing to pay fresh connection/reconnection charges. The court emphasized that the appellant could not refuse to supply electricity based on extinguished claims.Conclusion:The court concluded that the appellant's right to recover past dues was extinguished upon the approval of the resolution plan. The appellant is required to provide electricity connection to the respondent as per the Electricity Act, 2003. The appeal was dismissed, upholding the learned Single Judge's order.