NCLAT prevents electricity supply termination to corporate debtor during CIRP under Section 14(2) IBC

NCLAT upheld the Adjudicating Authority's order preventing termination of electricity supply to corporate debtor during CIRP. The tribunal held that electricity constitutes essential supply under Section 14(2) IBC read with Regulation 32 of CIRP Regulations, and cannot be discontinued during moratorium period despite non-payment of dues. The resolution professional was directed to endeavor payment of electricity dues through interim finance or other means. IBBI was urged to expedite proposed amendments to Regulation 32 to address operational difficulties faced by essential service suppliers during CIRP proceedings.

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ISSUES PRESENTED and CONSIDERED

The core legal issues considered in this judgment are:

1. Whether the electricity supply to the corporate debtor, Morarjee Textile Limited, can be terminated during the Corporate Insolvency Resolution Process (CIRP) under Section 14(2) of the Insolvency and Bankruptcy Code (IBC).

2. Whether the corporate debtor is obligated to pay for electricity consumed during the CIRP period under Section 14(2A) of the IBC.

3. The interpretation and application of the terms "essential supply" and "critical supply" under Sections 14(2) and 14(2A) of the IBC, respectively.

ISSUE-WISE DETAILED ANALYSIS

1. Termination of Electricity Supply under Section 14(2)

Relevant legal framework and precedents: Section 14(2) of the IBC mandates that the supply of essential goods or services to the corporate debtor shall not be terminated during the moratorium period. Regulation 32 of the CIRP Regulations specifies electricity as an essential supply unless it is a direct input to the output produced by the corporate debtor.

Court's interpretation and reasoning: The Tribunal interpreted that electricity supply is an essential service under Section 14(2) as it is not a direct input to the output produced by the corporate debtor. The Tribunal emphasized that the statutory scheme obliges the electricity supplier to continue the supply during the moratorium period.

Key evidence and findings: The Resolution Professional (RP) relied on Section 14(2) to argue that electricity is an essential service and cannot be disconnected. The Tribunal found no evidence that electricity was a direct input to the output produced by the corporate debtor.

Application of law to facts: Given the statutory protection under Section 14(2), the Tribunal concluded that the electricity supply should not be terminated, aligning with the legislative intent to keep the corporate debtor as a going concern.

Treatment of competing arguments: The Appellant argued that the corporate debtor should pay for electricity during the CIRP, but the Tribunal focused on the statutory obligation to continue supply under Section 14(2).

Conclusions: The Tribunal upheld the Adjudicating Authority's direction to not disconnect electricity during the CIRP, as it is an essential service under Section 14(2).

2. Payment for Electricity during CIRP under Section 14(2A)

Relevant legal framework and precedents: Section 14(2A) of the IBC allows the RP to determine if a supply is critical to preserve the value of the corporate debtor, requiring payment during the CIRP. The Tribunal referenced previous judgments distinguishing between essential and critical supplies.

Court's interpretation and reasoning: The Tribunal noted that the RP did not rely on Section 14(2A) to classify electricity as a critical supply requiring payment. Instead, the RP relied on Section 14(2), which does not mandate payment during the CIRP.

Key evidence and findings: The RP's communications indicated reliance on Section 14(2) rather than 14(2A), and partial payments were made to the Appellant.

Application of law to facts: The Tribunal differentiated between the protection offered under Section 14(2) and the payment obligations under Section 14(2A), concluding that the RP's reliance on Section 14(2) did not obligate immediate payment.

Treatment of competing arguments: The Appellant's argument for payment based on Section 14(2A) was not applicable as the RP did not classify electricity as a critical supply under this section.

Conclusions: The Tribunal found no obligation for immediate payment under Section 14(2) but acknowledged the RP's assurance to settle dues.

SIGNIFICANT HOLDINGS

Preserve verbatim quotes of crucial legal reasoning: "The statutory scheme, however, as contained in Section 14(2) prohibits the supplier of essential goods from terminating/ discontinuing the supply during moratorium period."

Core principles established: The Tribunal reinforced the distinction between essential and critical supplies, emphasizing the statutory protection for essential supplies under Section 14(2) without immediate payment obligations.

Final determinations on each issue:

1. The Tribunal upheld the direction to maintain electricity supply during the CIRP as an essential service under Section 14(2), without immediate payment obligations.

2. The RP's reliance on Section 14(2) rather than 14(2A) was appropriate, as electricity was not classified as a critical supply requiring payment during the CIRP.

3. The Tribunal encouraged the RP to clear electricity dues as assured, while acknowledging the statutory protection for essential services.

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