2025 (1) TMI 634 - AT - IBC

Electricity dues of corporate debtor cannot be imposed on auction purchasers under Section 53 liquidation waterfall

M/s Uttarakhand Power Corporation Limited (UPCL) Versus M/s. Shyam Baba Developers & Builders Pvt. Ltd., Mr. Rohit Sehgal

NCLAT dismissed appeal regarding liability for pre-CIRP electricity dues of corporate debtor. Tribunal held that pre-CIRP dues must be addressed through ... Liability to pay the pre-Corporate Insolvency Resolution Process (CIRP) electricity dues of the Corporate Debtor - waterfall mecahnism - payment of dues in accordance with Section 53 of the IB Code - HELD THAT:- It is relevant to notice that Judgment of the Hon’ble Supreme Court in K.C. Ninan [2023 (5) TMI 1251 - SUPREME COURT] was not in reference to liquidation proceeding where electricity authority has filed any claim. The above Judgment thus is not attracted in the facts of the present case and does not help the Appellant in any manner. The Judgment of the Hon’ble Supreme Court in the matter of Paschimanchal Vidyut Virtan Nigam Limited Vs. Raman Ispat Private Limited & Ors. [2023 (7) TMI 831 - SUPREME COURT] and in the matter of Tata Power Western Odisha Distribution Ltd. Vs. Jagannath Sponge Private Limited [2023 (9) TMI 1071 - SC ORDER] fully covers the issue - It was held in the said case that 'the issue of corporate debtor’s dues falls within the fold of the phrase ‘arising out of or in relation to insolvency resolution’ under section 60(5)(c) of the Code.' Conclusion - The pre-CIRP dues are to be addressed through the liquidation process under the IBC, not through imposing liability on auction purchasers. No error has been committed by the Adjudicating Authority - Appeal dismissed. ISSUES PRESENTED AND CONSIDERED 1. Whether a successful auction purchaser of assets of a corporate debtor in liquidation can be compelled to pay pre-CIRP electricity dues of the corporate debtor as a condition precedent to energisation/ restoration of electricity supply to the premises acquired by the purchaser. 2. Whether an auction conducted on an 'as is where is, as is what is and whatever there is' basis imposes upon the successful purchaser a continuing liability to discharge pre-CIRP statutory/operational dues (such as electricity dues) where the operational creditor has filed and had its claim admitted in the liquidation process and is to be paid pursuant to the Section 53 waterfall mechanism. 3. Whether statutory/regulatory provisions or supply codes (including provisions permitting recovery of past electricity dues from a new owner/occupier) can override or require payment outside the liquidation distribution mechanism once the operational creditor's dues are subject to liquidation proceedings. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Liability of successful auction purchaser to pay pre-CIRP electricity dues as condition for energisation Legal framework: The Insolvency and Bankruptcy Code, 2016 (IBC) governs distribution of the corporate debtor's assets in liquidation via the waterfall in Section 53; Section 60(5)(c) confers jurisdiction on tribunals under the Code for matters arising out of or in relation to insolvency resolution; liquidator's admission of claims and distribution under liquidation regulations determine satisfaction of pre-CIRP liabilities. Precedent treatment: This Tribunal and the Supreme Court authorities - notably Paschimanchal Vidyut Virtan Nigam Ltd. v. Raman Ispat and Tata Power Western Odisha Distribution Ltd. v. Jagannath Sponge - were treated as establishing that where operational creditors' claims are to be dealt with under the resolution plan or liquidation waterfall, such creditors cannot insist on payment of arrears outside that mechanism as a precondition to grant/ restoration of supply. Decisions like Telangana Southern Power and K.C. Ninan (earlier authorities relied on by the appellant) were distinguished where facts involved auctions under statutes (e.g., SARFAESI) or sales not occurring in liquidation proceedings where liability allocation in the auction terms was determinative. Interpretation and reasoning: The Court noted the admitted claim of the electricity provider in liquidation (Rs.7,66,95,203/-) and the liquidator's status report showing distribution under Section 53 with no surplus available to pay that class outside the waterfall. Relying on the clean-slate principle as applied in Paschimanchal and Tata Power, the Tribunal reasoned an operational creditor whose dues are subject to liquidation cannot insist on immediate payment from the successful purchaser before energisation; rather, such dues must be discharged in the manner and priority prescribed by Section 53. The Court further observed that the adjudicating authority correctly applied precedents and the liquidator's distribution accounts, which showed no short-circuiting of the waterfall was possible. Ratio vs. Obiter: Ratio - Where an operational creditor's pre-CIRP claim has been admitted and stands to be satisfied under liquidation distributions, that creditor cannot require the successful purchaser to pay such arrears as a condition for energisation; the dues must be addressed under Section 53. Obiter - Observations distinguishing auctions under other statutes (e.g., SARFAESI) where auction terms expressly shift liabilities to purchasers, and commentary on due diligence duties of bidders in non-liquidation sales. Conclusion: The Adjudicating Authority correctly directed energisation without requiring the purchaser to pay the admitted pre-CIRP electricity arrears outside the liquidation waterfall; the appeal on this ground fails. Issue 2 - Effect of 'as is where is' auction terms on purchaser's liability where operational creditor's claim is in liquidation Legal framework: Contractual terms of sale and auction notices can allocate liabilities between buyer and seller; however, where sale occurs under the IBC liquidation process, the Code and the Section 53 distribution mechanism govern satisfaction of the corporate debtor's pre-CIRP liabilities. Precedent treatment: Authorities involving sales outside liquidation (e.g., sales under SARFAESI or private auctions) support imposing liability on purchasers where the auction notice explicitly allocated statutory/local dues to buyers (Telangana Southern Power; K.C. Ninan). This Tribunal distinguished those authorities on the ground that they did not arise in liquidation proceedings where claims are admitted and liquidator conducts distribution under the statutory waterfall. The Tribunal followed Supreme Court rulings (Paschimanchal; Tata Power) holding the clean-slate principle and that creditors' claims in insolvency must be addressed through the Code's mechanism. Interpretation and reasoning: The Court recognized the general proposition that an 'as is where is' sale may shift risk and liability to purchasers, but emphasized that such contractual allocation cannot circumvent the statutory scheme of liquidation under the IBC when the operational creditor's claim is admitted in liquidation. The admitted claim and the liquidator's distributions demonstrate that the creditor's remedy is to participate in the liquidation process, not to enforce payment by the purchaser outside Section 53. The Tribunal therefore distinguished prior cases where the sale was not in liquidation and contractual terms allocated liabilities to the buyer. Ratio vs. Obiter: Ratio - Auction terms purporting to transfer pre-CIRP liabilities to a purchaser cannot defeat the statutory distribution and priority established by the IBC when the creditor's claim is within liquidation proceedings. Obiter - Practical guidance on bidders' duty of due diligence in non-liquidation auctions and the effect of explicit auction clauses in that context. Conclusion: The 'as is where is' nature of the e-auction did not entitle the electricity supplier to demand payment from the successful purchaser where the supplier's claim had been admitted and was to be satisfied through liquidation distributions under Section 53; the adjudicating authority correctly treated the matter as governed by the IBC. Issue 3 - Applicability of electricity supply/regulatory provisions permitting recovery from new owner/occupier where claim is admitted in liquidation Legal framework: Sectoral regulations (e.g., electricity supply codes) may contemplate recovery of past dues from new owners/occupiers; however, where dues of the corporate debtor have crystallised as operational claims within insolvency/liquidation, such claims fall within the Code's purview and are subject to adjudication/payment as per the resolution/liquidation process (s.60(5)(c) and relevant Supreme Court authorities). Precedent treatment: The Tribunal relied on Supreme Court authority (Paschimanchal; Tata Power) and its own precedents (Chinar Steel; Yarn Sales) holding that regulatory demands for payment of arrears cannot override the Code's mechanism once claims are within insolvency proceedings. Decisions permitting recovery from new owners were considered inapposite where the operational creditor's claim has been admitted and is to be satisfied via Section 53. Interpretation and reasoning: The Court held that the electricity supplier's right to recover is constrained by the Code when the supplier has become an operational creditor in the liquidation process; the liquidator's declaration/admission and subsequent waterfall distribution bind the available remedies. The Court noted that regulatory codes do not permit a piecemeal circumvention of the statutory liquidation priority and that the Tribunal/Adjudicating Authority retains jurisdiction over disputes arising from insolvency-related dues. Ratio vs. Obiter: Ratio - Statutory/regulatory provisions permitting recovery from a new owner/occupier cannot be invoked to require payment outside the liquidation waterfall where the operational creditor's claim is admitted and subject to liquidation distribution under the IBC. Obiter - Observations on situations where government dues crystallised outside insolvency may be treated differently (as per Embassy Property), but not applicable here. Conclusion: Sectoral/regulatory provisions did not justify insisting on immediate payment by the purchaser; the Adjudicating Authority correctly declined to require payment outside the liquidation process. Cross-references and final determination All issues were considered together: the admitted nature of the operational creditor's claim in liquidation (as per the liquidator's status report and Section 53 distribution), the settled Supreme Court and Tribunal authority applying the clean-slate principle to operational creditors in insolvency/liquidation, and the factual distinction from non-liquidation auctions where auction terms allocate liabilities, led to the conclusion that the Adjudicating Authority correctly allowed energisation without conditioning it on payment of pre-CIRP electricity arrears by the purchaser. The appeal was dismissed. (Ratio: binding application of IBC waterfall and related precedents; Distinguishment: cases where auction outside liquidation expressly allocates liabilities to buyer.)