2025 (3) TMI 784 - AT - IBC

NCLAT rules fuel surcharge charges become due only upon billing, not pre-insolvency liabilities under Section 31 IBC

Shree Rajasthan Syntex Ltd. Versus Chief Engineer (Commercial), Ajmer, Ajmer Vidyut Vitran Nigam Ltd., Managing Director, Ajmer Vidyut Vitran Nigam Ltd.

NCLAT held that Fuel Surcharge (FS) and Special Fuel Surcharge (SFS) are statutory charges that become due only upon billing, not pre-insolvency ... Extinguishment of Fuel Surcharge (FS) and Special Fuel Surcharge (SFS) Claims Under IBC - conflict between the Electricity Act, 2003 and IBC, 2016 - Do FS and SFS count as pre-insolvency liabilities that were erased when the resolution plan was approved under Section 31 of the Insolvency and Bankruptcy Code, 2016 (IBC)? - HELD THAT:- It can be seen from Section 54G and Regulation 20 that it is the responsibility of Corporate Debtor to provide the complete claims from all the creditors to the Resolution Professional for inclusion in Form-P10. The respondents submit that the CD has a running account with the Respondents in which payments are made in tranches and reconciliation is done from time to time between CD and Respondents. He further cites letter dated 08.11.2024 from CD to Respondents in this regard. The Respondent submits that they did not file any claim subsequent to publication of Form P10 on account of FS and SFS as these charges become due only after the bill is raised by the Discom. It is important to understand the genesis of SFS. The SFS was imposed on Electricity Distribution Companies of Rajasthan, as a result of dispute with M/s Adani Power Rajasthan Ltd. (APRL), which was running a coal based thermal power plant with an installed capacity of 1320 MW at Kawai, Rajasthan. The power generated by the Kawai plant was to be purchased by 3 electricity distribution companies of Rajasthan viz. Jaipur Vidyut Vitran Nigam Ltd. (JVVNL), Ajmer Vidyut Vitran Nigam Ltd. (AVVNL) and Jodhpur Vidyut Vitran Nigam Ltd. (JdVVNL). These three electricity distribution companies are collectively referred to as Rajasthan Discoms. APRL had signed Power Purchase Agreement (PPA) with the Rajasthan Discoms for supply of 1200 MW from their plant. The FSA is commonly known as SFS by the consumers and the same terminology is used by Discoms in their electricity bills. It is clear from the sequence of events in preceding paragraphs that the SFS has arisen as a result of Judgment of Hon’ble Supreme Court vide order dated 25.02.2022 [2022 (2) TMI 1499 - SC ORDER] based on change in law in terms of existing PPA between APRL and RUVNL/Rajasthan Discoms. Based on the Judgment of Hon’ble Supreme Court the RERC had laid down the manner and mode of recovery of the SFS. The same was to be recovered @ Rs. 0.07 per unit from the consumers being billed on monthly basis in 60 equal instalments. In view of Section 142, it is further noted that the respondents had no option, but to comply with the orders of RERC regarding payment of FS & SFS by the consumers. The installments of FS were decided by RERC at an earlier occasion. Accordingly, The bills for SFS and FS are sent to the consumers along with monthly bills for consumption of electricity as per the instalments fixed by RERC. The amount of SFS or FS as decided can only be claimed in accordance with the manner laid down in the tariff order. In this case RERC has fixed that SFS be recovered from the consumers in 60 monthly instalments @ Rs. 0.07 per unit. Similar orders have been issued in regard to FS earlier. It is seen from the records that FS and SFS charges have been paid upto April, 2023. The appellant stopped paying the dues from May, 2023 onwards after obtaining the interim protection against disconnection from Adjudicating Authority on 25.05.2023. The claim of the appellant for eradication of entire liability on account of FS/SFS would not hold as the bills for subsequent period were not issued by the respondent. Any amount which is due in future cannot be eradicated by including the same in resolution plan. The FS/SFS charges which are statutory dues and become due only after the bill is submitted cannot be eradicated by such resolution plan. FS/ SFS arise due to changes in power purchase cost beyond the control of Discoms and the same is treated as an uncontrollable parameter in tariff regulations. The Fuel Surcharge and Special Fuel Surcharge in the present case have arisen due to variation in fuel cost. Further, in case of SFS due to change in law as decided by Hon’ble Supreme Court. It is due to peculiarities in the instant matter that the final decision about amount payable to ARPL and subsequent manner of recovery of arrears from consumers had to be decided at the level of Hon’ble Supreme Court and manner of recovery from end consumer was finalized by the RERC. FS and SFS are in our view statutory charges as decided by RERC and are payable only after the bill is raised in monthly instalments as decided by RERC consequent to final decision of Hon’ble Supreme Court. In this regard, Appellants have relied upon the judgement of Hon’ble SC in Paschimanchal Vidyut Vitran Nigam Ltd. vs. Raman Ispat Pvt. Ltd. & Ors. [2023 (7) TMI 831 - SUPREME COURT]. The aforesaid Judgment holds that Section 238 of the IBC overrides the provisions of the Electricity Act, 2003 despite the latter containing two specific provisions, which open with non-obstante clauses i.e. Section 173 and 174. The matter in aforesaid case related to liquidation proceedings under the Code, where the appellant Discom held security interest against a property of the respondent and which was attached on the application of the appellant. In the present case, the appellant has not identified any specific provision of the Electricity Act that is in direct conflict with the IBC. A mere assertion of overriding effect, without demonstrating any inconsistency, is insufficient, it is required to follow the principle of harmonious construct between the two legislations. Conclusion - i) FS and SFS are statutory charges that become due upon billing, not pre-insolvency liabilities extinguished by the resolution plan. ii) There is no conflict between the Electricity Act and IBC; both can be harmoniously interpreted. iii) The Appellant is directed to pay outstanding FS and SFS within 60 days, with penalties applicable for non-compliance under the Electricity Act. The impugned order dated 14.06.2024 is upheld, the Appellant is directed to pay the outstanding FS and SFS within 60 days. Failure to comply will result in penalties as per the Electricity Act, 2003 - appeal dismissed. ISSUES PRESENTED and CONSIDEREDThe core legal issues considered in this judgment include:Whether Fuel Surcharge (FS) and Special Fuel Surcharge (SFS) are pre-insolvency liabilities that were extinguished upon the approval of the resolution plan under Section 31 of the Insolvency and Bankruptcy Code, 2016 (IBC).Whether there is a conflict between the Electricity Act, 2003 and IBC, 2016 in the context of recovering FS and SFS, or if both statutes can be harmoniously interpreted.ISSUE-WISE DETAILED ANALYSIS1. Extinguishment of FS and SFS Claims Under IBCThe Appellant argued that FS and SFS charges, being pre-insolvency claims, were extinguished upon the approval of the resolution plan, citing precedents like Ghanashyam Mishra & Sons Pvt. Ltd. v. Edelweiss Asset Reconstruction Co. Ltd., and Essar Steel India Ltd. v. Satish Kumar Gupta. These cases establish that claims not included in an approved resolution plan are extinguished.The Respondents contended that FS and SFS did not become due until the bills were raised, which occurred post-insolvency commencement. The Court considered Section 56 of the Electricity Act, 2003, which indicates that electricity charges become 'first due' only after the bill is issued, despite the liability arising from consumption.The Court found that FS and SFS are statutory charges under the Electricity Act, not ordinary business debts, and become due only upon billing. Thus, they cannot be extinguished by the resolution plan as they are prospective claims arising after the bills are issued.2. Harmonious Interpretation of the Electricity Act and IBCThe Appellant claimed that IBC overrides the Electricity Act, citing the judgment in Paschimanchal Vidyut Vitran Nigam Ltd. vs. Raman Ispat Pvt. Ltd., which held that IBC's Section 238 overrides other laws. However, the Court found no direct conflict between the two statutes in this case.The Court emphasized the principle of harmonious construction, noting that an override applies only when there is a clear inconsistency between statutes. The Appellant failed to demonstrate such a conflict. The Court concluded that FS and SFS, being statutory obligations under the Electricity Act, are not extinguished by the IBC's resolution plan.SIGNIFICANT HOLDINGSThe Court upheld the impugned order, allowing the Respondents to recover FS and SFS. It concluded that:FS and SFS are statutory charges that become due upon billing, not pre-insolvency liabilities extinguished by the resolution plan.There is no conflict between the Electricity Act and IBC; both can be harmoniously interpreted.The Appellant is directed to pay outstanding FS and SFS within 60 days, with penalties applicable for non-compliance under the Electricity Act.