2025 (12) TMI 1008 - AT - IBC

Auction buyer denied interest on pre-liquidation electricity security deposit; entitlement belongs to erstwhile consumer under electricity regulations

NCLAT dismissed the appeal of the successful auction purchaser seeking interest on the electricity security deposit relating to the corporate debtor's ... Entitlement for interest on electricity security deposit - all electricity charges accrued prior to liquidation commencement date shall stand permanently extinguished or not - HELD THAT:- The CIRP against the Corporate Debtor had commenced on 18.12.2019 and liquidation proceeding commenced on 04.11.2020. Appellant was declared successful auction purchaser by letter dated 09.03.2021 - It is already noticed the reliefs and concession which was granted to the successful auction purchaser which directed Uttar Gujarat Vij Company to restore the electricity connection of the Corporate Debtor so that the Corporate Debtor may run as a going concern. While disposing of the appeal on 16.05.2023, it is noted that permanent disconnection was made in the year 2017 and Uttar Gujarat Vij Company was ready to give fresh connection to successful bidder and electricity was to be restored within six weeks. It is admitted fact between the parties that fresh electricity connection was taken by the successful auction purchaser vide his application dated 23.05.2023 which was processed in which application the applicant has opted for LT electricity connection of 95KW against 2500KVA HT connection which was granted to the earlier company. Reliefs and concessions which was granted to the successful auction purchaser on 04.10.2021 only directed for restoration of electricity supply to the corporate debtor and the security deposit for connection was directed to continue in the name of Corporate Debtor. The reliefs and concessions granted to the Appellant by the Adjudicating Authority cannot be read to mean any direction with regard to payment of interest on the security deposit. The claim of payment of interest of security deposit cannot be said to have arisen out of liquidation proceeding. Reliefs and concessions which has been granted to the Appellant as extracted above cannot be read to mean that the reliefs and concessions also include claim of the Appellant for grant of interest on security deposit from the date when electricity was permanently disconnected in the year 2017. Regulation 4.11 of GERC Regulations relied by the Appellant requires licensee to pay interest on security deposit of consumer for the electricity supplied at the bank rate which interest accrued to the credit of the consumer during previous year shall be adjusted in the electricity bills of May of every year. In the present case, the electricity supply of erstwhile company was permanently disconnected in the year 2016-17. Regulation 4.11 was mechanism to adjust the interest on the security deposit in the bill of next year. In the present case, there was due on the erstwhile company due to which security deposit was withheld and after prolonged litigation with Uttar Gujarat Vij Company, the dues could be paid under the orders of the High Court where deposit was made by the Company. Appellant who is a successful auction purchaser came in the scene only in the year 2021 cannot claim interest from permanent disconnection of electricity supply and when under the litigation between the Uttar Gujarat Vij Company and erstwhile company, terminated by withdrawing the amount by Uttar Gujarat Vij Company deposited by its company in the High Court. Thus, no ground has been made out to interfere in the impugned order - appeal dismissed. 1. ISSUES PRESENTED AND CONSIDERED 1.1 Whether a claim for interest on electricity security deposit, pertaining to a pre-CIRP electricity connection which was permanently disconnected before commencement of insolvency, falls within the jurisdiction of the Adjudicating Authority under Section 60(5) of the Insolvency and Bankruptcy Code. 1.2 Whether the earlier order granting 'reliefs and concessions' in favour of the successful auction purchaser, including continuation of security deposit in the name of the corporate debtor and restoration of electricity supply, created or recognized any right to claim interest on the electricity security deposit as part of the liquidation process. 1.3 Whether the subsequent orders of the Appellate Tribunal, particularly the order granting liberty to approach the Adjudicating Authority for interest on the security deposit, concluded or affirmed the jurisdiction of the Adjudicating Authority to adjudicate such claim on merits. 1.4 Whether, on the facts and under Regulation 4.11 of the Gujarat Electricity Regulatory Commission (Security Deposit) Regulations, 2005, the successful auction purchaser was substantively entitled to interest on the security deposit for the period from disconnection of the earlier connection until refund. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Jurisdiction of the Adjudicating Authority under Section 60(5) IBC over claim for interest on electricity security deposit Legal framework (as discussed) 2.1 The Adjudicating Authority considered its jurisdiction under Section 60(5) of the Insolvency and Bankruptcy Code in relation to disputes connected with the insolvency resolution, liquidation, or the corporate debtor as a going concern. 2.2 The Adjudicating Authority examined the nature of the claim as one arising from contractual/regulated obligations under electricity law, referable to forums such as the Consumer Grievance Redressal Forum under Section 42(5) of the Electricity Act, 2003 or civil courts. Interpretation and reasoning 2.3 The Tribunal noted that the electricity connection of the erstwhile consumer was permanently disconnected in 2016-2017, much prior to the commencement of CIRP (18.12.2019) and liquidation (04.11.2020). 2.4 The claim before the Adjudicating Authority was confined to interest on a security deposit made for that pre-CIRP connection, disconnected long before the insolvency proceedings, and later refunded (principal amount) to the successful auction purchaser in 2023. 2.5 The Adjudicating Authority found, and the Tribunal affirmed, that the 'non-payment of interest on security deposit' did not bear a direct nexus with: (a) the conduct of the CIRP, (b) the liquidation process, or (c) the sale of the corporate debtor as a going concern or its current functioning. 2.6 The Tribunal endorsed the Adjudicating Authority's view that the dispute is essentially one relating to 'contractual obligations under electricity regulations', to be agitated before the statutorily created Consumer Grievance Redressal Forum or before civil courts, and not within the limited jurisdiction of the Adjudicating Authority under Section 60(5) IBC. 2.7 It was further noted that the claim of interest does not arise from non-compliance with any direction in the liquidation process; it is not a matter which, if unresolved, would obstruct or hinder the running of the corporate debtor as a going concern. Conclusions 2.8 The claim for interest on the electricity security deposit does not fall within the ambit of Section 60(5) of the Insolvency and Bankruptcy Code. 2.9 The Adjudicating Authority correctly declined to entertain the application for interest on the security deposit, leaving the applicant at liberty to approach the competent forum under electricity laws or civil courts. Issue 2: Scope of earlier 'reliefs and concessions' and whether they conferred a right to interest on security deposit Legal framework (as discussed) 2.10 The earlier order on IA No. 411 of 2021 granted the following relevant relief: 'all electricity charges accrued prior to liquidation commencement date shall stand permanently extinguished and any security deposit for connection shall continue in the name of the Corporate Debtor. We further direct ... to restore the electricity supply to the Corporate Debtor so that the Corporate Debtor can be run as a going concern.' 2.11 In the subsequent appeal against that order, the Appellate Tribunal recorded statements that: (a) all dues on the old electricity connection had been recovered, (b) the old connection had been permanently disconnected in 2017 and a fresh connection could be given, (c) the security deposit 'shall be continued in the name of the Corporate Debtor', and (d) any entitlement to interest on security deposit 'may be considered in accordance with applicable rules and regulations.' Interpretation and reasoning 2.12 The Tribunal recorded that, in actual implementation, the earlier supply was never restored; instead, the successful auction purchaser explicitly applied for and obtained a 'fresh LT connection' of 95 KW in May 2023, in place of the earlier 2500 KVA HT connection, and thereafter sought refund of the security deposit, which was paid on 30.06.2023. 2.13 On these facts, the Tribunal held that the relief granted in 2021-directing restoration of supply and continuation of security deposit in the name of the corporate debtor-did not operate in the manner contemplated, because: (a) the earlier connection was not restored, (b) the applicant consciously chose a new connection and new arrangement, and (c) the applicant itself requested refund of the original security deposit. 2.14 The Tribunal further held that the earlier 'reliefs and concessions' cannot be read to include or imply any direction that interest on the security deposit, from the date of disconnection, must be paid to the applicant. 2.15 It was emphasized that the claim for interest is independent of, and does not emanate from, the reliefs granted for purposes of running the corporate debtor as a going concern. The order addressed restoration/continuation of supply and extinguishment of past electricity dues, not the historical accrual of interest on a pre-CIRP security deposit. Conclusions 2.16 The earlier order granting 'reliefs and concessions' did not confer any right or entitlement to interest on the electricity security deposit. 2.17 The claim for interest cannot be treated as arising from, or embedded in, the liquidation process or in the reliefs related to running the corporate debtor as a going concern. Issue 3: Effect of the Appellate Tribunal's order dated 18.12.2023 on jurisdiction of the Adjudicating Authority Legal framework (as discussed) 2.18 In a later application (IA No. 4473 of 2023) moved in the disposed-of appeal, the Tribunal had recorded that: (a) issues about interest on security deposits 'were not before the Adjudicating Authority in this appeal', (b) the appellant's entitlement to seek interest could be 'considered in accordance with applicable rules and regulations', and (c) 'it is always open to the applicant to file appropriate application before the Adjudicating Authority for relief, if any', and that the Tribunal was 'not expressing any opinion on merits of the claim' and it was 'for the Adjudicating Authority to consider and decide in accordance with law.' Interpretation and reasoning 2.19 The successful auction purchaser argued that these observations implied that the Adjudicating Authority necessarily had jurisdiction and was obliged to decide the interest claim on merits. 2.20 The Tribunal rejected this construction and clarified that: (a) the earlier observations were confined to liberty granted to the applicant to move the Adjudicating Authority, (b) no finding was returned that the Adjudicating Authority in fact had jurisdiction over such a claim, and (c) the question of jurisdiction was neither raised nor adjudicated in that order, and therefore cannot be treated as having been decided. 2.21 The Tribunal held that the phrase 'to consider and decide in accordance with law' necessarily includes consideration of threshold jurisdiction under Section 60(5) IBC as part of 'in accordance with law'. Conclusions 2.22 The earlier order dated 18.12.2023 did not affirm or pre-determine the jurisdiction of the Adjudicating Authority; it merely permitted the applicant to approach that forum. 2.23 The Adjudicating Authority was entitled to and correctly did examine its own jurisdiction, and to decline to entertain the claim for interest on security deposit as being outside the scope of Section 60(5) IBC. Issue 4: Substantive entitlement of the successful auction purchaser to interest on the security deposit under GERC Regulation 4.11 Legal framework (as discussed) 2.24 The applicant relied on Regulation 4.11 of the Gujarat Electricity Regulatory Commission (Security Deposit) Regulations, 2005, which provides that: 'The licensee shall pay interest on Security Deposit of consumer for the electricity supplied, at the Bank Rate ... The interest accrued ... during the previous year shall be adjusted in electricity bills of May of every year ...' Interpretation and reasoning 2.25 The Tribunal construed Regulation 4.11 as a mechanism for annual adjustment of accrued interest on security deposit in the consumer's subsequent electricity bills, i.e., as a running arrangement linked to ongoing electricity supply and billing. 2.26 On the factual matrix, it was noted that: (a) the electricity supply of the erstwhile consumer was permanently disconnected in 2016-2017, (b) at the time of disconnection, there were arrears; the security deposit was withheld against pending dues in terms of the Supply Code and an undertaking dated 13.04.2009, (c) subsequent litigation between the licensee and the erstwhile consumer was resolved through proceedings in the High Court, where amounts deposited were withdrawn towards satisfaction of dues, and (d) the successful auction purchaser came into the picture only in 2021, much after the disconnection and after the underlying dispute regarding arrears between the licensee and the erstwhile consumer. 2.27 The Tribunal held that, in these circumstances, the successful auction purchaser-who was not the original consumer at the time of supply and disconnection and who entered into an altogether new electricity arrangement-cannot claim historic interest under Regulation 4.11 from the date of disconnection up to refund in 2023. 2.28 It was emphasized that Regulation 4.11 contemplates interest 'for the electricity supplied' to the consumer and its adjustment in future bills; it does not support a retrospective claim by a later purchaser unrelated to the supply period, particularly where the security deposit was in fact withheld against dues of an erstwhile consumer and adjusted in a separate litigation. Conclusions 2.29 On the facts, Regulation 4.11 does not entitle the successful auction purchaser to claim interest on the security deposit from the date of permanent disconnection until refund. 2.30 Even on a substantive evaluation of the regulatory framework, the claim of interest by the successful auction purchaser is untenable and cannot be fastened upon the licensee for the period claimed. Overall disposition 2.31 The Tribunal upheld the order of the Adjudicating Authority rejecting the application for payment of interest on the electricity security deposit, holding that: (a) the claim does not arise out of or relate directly to the insolvency resolution or liquidation process, (b) the Adjudicating Authority has no jurisdiction under Section 60(5) IBC to entertain such a dispute, (c) the earlier orders and reliefs did not create a right to such interest, and (d) the applicant, if so advised, may pursue remedies before the competent forum under electricity law or civil courts.