2022 (11) TMI 704 - HC - Insolvency and Bankruptcy

Court orders MSEDCL to process NRC Ltd's new electricity connection application without past arrears payment

The court directed MSEDCL to process NRC Ltd's application for a new electricity connection without insisting on payment of past arrears, emphasizing the ... Recovery of past dues of Maharashtra State Electricity Distribution Company Limited (MSEDCL) - MSEDCL’s role and standing within the framework of the Resolution Plan - statutory creditor or not - stand that MSEDCL is that unless its past dues are cleared, it cannot and will not provide a new connection to NRC Ltd at its units. Have its claims for past dues been written off or reduced upon the sanction of the Resolution Plan? - Can these past dues be said to have been extinguished upon approval of the Resolution Plan? - Is it permissible for MSEDCL, whatever its description as a creditor to whom amounts are owed, to stand outside the Resolution Plan and raise its demands? HELD THAT:- Two things are apparent. MSEDCL’s demands are not person- or entity-specific. If one entity applies for a connection and then leaves the premises to which the connection provided, MSEDCL is not required to follow that entity to whatever location it chooses to migrate. It can recover from the successor. But it is equally clear, at least at this stage, that MSEDCL has no enforceable charge in specie over the premises themselves, and to which the connection is given. What the Regulation says is that whoever succeeds to the use of an enjoyment of the premises, to get the benefit of the electricity connection, is liable to pay MSEDCL dues. That is all that Regulation 12.5 says. It does not create a statutory charge and MSEDCL cannot under that Regulation, for example, recover dues by purporting to attach or sell the premises to which the connection is given - But this Regulation does not permit MSEDCL to stand outside an approved Resolution Plan for the simple reason that its claim is for past dues, and these have been dealt with by the Resolution Plan. There is a completely unexplained failure on MSEDCL’s part to lodge its claim within the RP in time. It really had to do very little except lodge its claim. There is the Supreme Court finding in Ghanashyam Mishra [2021 (4) TMI 613 - SUPREME COURT] regarding other claims including from tax authorities standing extinguished after the 2019 amendment. That simply cannot be ignored. The only course that is available in these circumstances, is to direct MSEDCL to process the NRC Ltd’s application for the connection at the four villages without insisting on payment of the previous demand for past arrears, but on the clear understanding that this creates no equities in favour of NRC Ltd in regard to MSEDCL demand. Second, that if NRC Ltd pursues its application for a connection at the four villages, it does so on the footing that that application will be processed, and the connection provided by MSEDCL subject to the outcome of this Petition. This must necessarily be so. The applications by NRC Ltd for the reconnection and the new connection will be processed by MSEDCL on this basis. For its own internal records and even otherwise MSEDCL must be permitted to continue to show the amount of arrears and any claim for interest in the bills. This is needed for MSEDCL book keeping purposes and to safeguard against a possible future argument that MSEDCL’s claim is barred by limitation etc. - MSEDCL cannot, therefore, either refuse the new connection/restoration, nor disconnect until further orders only on the basis that its past dues have not been paid. Issues Involved:1. MSEDCL's role and standing within the framework of the Resolution Plan.2. The impact of the Insolvency and Bankruptcy Code (IBC) on MSEDCL's claims for past dues.3. Applicability of Regulation 12.5 of the MERC Regulations 2021.4. The legal implications of the Supreme Court decisions in Ghanashyam Mishra & Sons Pvt Ltd v Edelweiss Assets Reconstruction Company and State Tax Officer (1) v Rainbow Papers Limited.5. Interim relief and balancing of competing equities.Issue-wise Detailed Analysis:1. MSEDCL's Role and Standing within the Framework of the Resolution Plan:The primary dispute is between NRC Ltd and MSEDCL regarding past dues. MSEDCL insists that unless past dues are cleared, it will not provide a new connection to NRC Ltd. The court must balance competing equities given the Supreme Court judgments, particularly in light of NRC Ltd emerging from a Corporate Insolvency Resolution Process (CIRP) under a sanctioned Resolution Plan approved by the National Company Law Tribunal (NCLT). The court needs to take a prima facie view on whether MSEDCL's claims for past dues have been extinguished upon approval of the Resolution Plan.2. Impact of the Insolvency and Bankruptcy Code (IBC) on MSEDCL's Claims for Past Dues:MSEDCL did not submit its claim within the stipulated time during the CIRP process. The Supreme Court in Ghanashyam Mishra & Sons Pvt Ltd v Edelweiss Assets Reconstruction Company held that once a Resolution Plan is approved, it becomes binding on all stakeholders, including creditors, and extinguishes all claims not part of the Resolution Plan. This legislative intent is to ensure the Resolution Applicant starts on a clean slate. The court observed that MSEDCL's failure to lodge its claim within the prescribed time means its claim for past dues is extinguished.3. Applicability of Regulation 12.5 of the MERC Regulations 2021:Regulation 12.5 states that any unpaid charge for electricity remains a charge on the premises and is recoverable from the new owner or occupier. However, the court found that this does not create a statutory charge in the nature of a security but merely makes the new occupant liable for dues. It does not allow MSEDCL to stand outside an approved Resolution Plan. Therefore, MSEDCL cannot use this regulation to claim past dues that were extinguished under the Resolution Plan.4. Legal Implications of Supreme Court Decisions:The court examined the Supreme Court decisions in Ghanashyam Mishra and Rainbow Papers. In Ghanashyam Mishra, the Supreme Court held that all claims not part of the Resolution Plan are extinguished. Rainbow Papers reiterated that the Resolution Plan must conform to statutory requirements. However, the court distinguished the facts of Rainbow Papers from the present case, noting that MSEDCL failed to file its claim within the time frame, unlike the STO in Rainbow Papers who had filed a claim before the approval of the Resolution Plan.5. Interim Relief and Balancing of Competing Equities:The court directed MSEDCL to process NRC Ltd's application for a new electricity connection without insisting on payment of past arrears, but clarified that this does not create any equities in favor of NRC Ltd regarding MSEDCL's demand. The court emphasized the need to balance competing interests and ensure that MSEDCL's interests are safeguarded while also considering the viability of the Resolution Plan. The court allowed MSEDCL to continue showing the amount of arrears in its bills for internal records and book-keeping purposes but prohibited it from refusing or disconnecting the new connection based on unpaid past dues.Conclusion:The court directed MSEDCL to process NRC Ltd's application for new electricity connections without demanding payment of past dues, while preserving the rights and contentions of both parties for the final hearing. The court underscored the importance of adhering to the statutory framework of the IBC and the binding nature of an approved Resolution Plan.