Tuesday, 22 June 2021

Executive Engineer Uttar Gujrat VIJ Company Ltd. Vs. Devang P Samapat - Continuation of Essential services during CIRP.

NCLAT (27.05.2021) in Executive Engineer Uttar Gujrat VIJ Company Ltd. Vs. Devang P Samapat RP of M/s. Kanoovi Foods Pvt. Ltd. [Company Appeal (AT) (Insolvency) No. 371 & 372 of 2021] held that;

  • Illustration of Regulation 32 makes the distinction clear. If the electricity consumption was for manufacturing and output of the Biscuits which is the normal operation of the Corporate Debtor, in that case dues arising from such supply of electricity during moratorium would have to be paid during moratorium. 

  • Sub-section 2A of Section 14 read with Regulations referred above makes it clear that if the supply is for managing the operations of the Corporate Debtor the supply cannot be interrupted during moratorium except where Corporate Debtor has not paid dues arising from such supply during the moratorium period. 

 

Excerpts of the order; 

# 2. This Appeal has been filed by the Appellant-Uttar Gujarat Vij Company Ltd. being aggrieved by two orders passed by the Adjudicating Authority (National Company Law Tribunal, Ahmedabad Bench, Court 1). The Adjudicating Authority was moved by the Appellant by way of I.A. No. 443 of 2020 in CP(IB) 377/2018 claiming recovery of electricity charges during CIRP Period. The Adjudicating Authority passed following orders on 21st October, 2020. The First Impugned Order reads as under:

  • “I.A. 443 OF 2020, Learned Counsel Ms. Devanshi Pandya appeared for the Applicant. Learned Counsel Mr. Raju Kothari appeared for the Respondent. This Application is filed for recovery of electricity charges during CIRP. It is CIRP Cost which shall be considered at time of considering the resolution plan, if any or at the time of process of liquidation of the Corporate Debtor. At this stage, this application is not maintainable. Hence, IA 443 of 2020 stands disposed-off.”


# 3. The Appellant filed another I.A. No. 819 of 2020 in same CP(IB) 377 of 2018 and the Adjudicating Authority passed the following order on 2nd December, 2020 (Second Impugned Order) which reads as under:

  • “ Heard Learned Counsel for the Applicant. IA 819 of 2020 is filed for review of our order. This authority does not have jurisdiction to review its own order under Rule 11 of NCLT Rules. Applicant is at liberty to file appeal if they are aggrieved by such order. Hence, IA 819 OF 2020 stands disposed-off. Matter to appear for further consideration on 11.01.2021.”


# 4. Aggrieved by the above two Orders, the present Appeal has been filed.


# 5. The Learned Counsel for the Appellant submits that the Appellant was entitled to recover electricity charges being incurred by the Corporate Debtor on month to month basis after the CIRP was initiated against the Corporate Debtor. The same should have been paid but were not paid.


# 6. The Learned Counsel submits that it is erroneous on the part of the Adjudicating Authority to refer in the Order dated 21st October, 2020 that Application claiming recovery of electricity charges during CIRP is not maintainable.


# 7. The Learned Counsel submits that as per sub-section 2A of Section 14, the Appellant was entitled to recover the electricity charges which have been held to be essential services.


# 8. On being asked, the Learned Counsel for the Appellant states that considering the electric consumptions which have taken place during CIRP, it appears that the Resolution Professional who was managing the Corporate Debtor was using the electricity for running of the office and other expenses. The Learned Counsel for the Appellant is not in a position to say that the consumption was for manufacturing purposes. The Corporate Debtor is manufacturer of Biscuits it is stated. The Liquidator who is present in Virtual Mode submits that he was also the Resolution Professional and consumption of electricity which has been done was only with regard to the running of office during the CIRP period and was for the security and essential purposes only and that it was not for manufacturing purposes.


# 11. Illustration of Regulation 32 makes the distinction clear. If the electricity consumption was for manufacturing and output of the Biscuits which is the normal operation of the Corporate Debtor, in that case dues arising from such supply of electricity during moratorium would have to be paid during moratorium. Sub-section 2A of Section 14 read with Regulations referred above makes it clear that if the supply is for managing the operations of the Corporate Debtor the supply cannot be interrupted during moratorium except where Corporate Debtor has not paid dues arising from such supply during the moratorium period. In present matter the consumption is stated to have been for running of office and security of Corporate Debtor. In that case, the same will be part of the CIRP Costs which can be recovered when the Resolution Plan is approved or would form part of Section 53 if the Liquidation has been initiated.


# 12. As such, for these reasons, in the facts of the matter, we are unable to disagree with the Adjudicating Authority when in its order dated 21st October, 2020 it was observed that the electricity charges during CIRP would form part of CIRP Costs.


# 13. For these reasons, we do not interfere in Impugned Orders as we do not find any substance in the Appeal. We decline to admit the Appeal. The Appeal is disposed accordingly.


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The sole purpose of this post is to create awareness on the "IBC - Case Law" and to provide synopsis of the concerned case law, must not be used as a guide for taking or recommending any action or decision. A reader must refer to the full citation of the order & do one's own research and seek professional advice if he intends to take any action or decision in the matters covered in this post.