The rules of the Bar Council of India prohibit law firms from advertising and soliciting work through communication in the public domain. This website is meant solely for the purpose of information and not for the purpose of advertising. Kings & Alliance LLP does not intend to solicit clients through this website. We do not take responsibility for decisions taken by the reader based solely on the information provided in the website. By clicking on ‘ENTER’, the visitor acknowledges that the information provided in the website (a) does not amount to advertising or solicitation and (b) is meant only for his/her understanding about our activities and who we are.
By continuing to use this site you consent to the use of cookies on your device as described in our Cookie Policy
The National Company Law Appellate Tribunal (NCLAT) in Maharashtra State Electricity Distribution Company Ltd. & Anr. Versus Ravi Sethia Resolution Professional of Morarjee Textiles Ltd.1 held that the supply of electricity, being an essential service, cannot be discontinued during the Corporate Insolvency Resolution Process (CIRP) under Section 14 of the Insolvency and Bankruptcy Code, 2016 (Code).
The Corporate Debtor was admitted into CIRP, and a public announcement was made by the Resolution Professional (RP). Thereafter, the Appellant, an electricity distribution company, submitted its claims before the RP for unpaid electricity dues. When no payment was made, the electricity supply was discontinued, prompting the RP to write to the company, stating that electricity, as an essential supply, cannot be discontinued under Section 14(2) of the Code.
An interlocutory application was also filed by the RP seeking the restoration of electricity supply, which was allowed. The Appellant then challenged this decision before the Appellate Tribunal.
Statutory Scheme
The Tribunal first examined the scheme of the Code to resolve the controversy at hand.
It referred to Section 14 of the Code, particularly sub-section (2), which states that the supply of essential services or goods to the corporate debtor, as may be specified, shall not be terminated, suspended, or interrupted during the moratorium period.
Furthermore, Section 14(2A) of the Code provides that the supply of essential services or goods, which the Interim Resolution Professional or Resolution Professional, as the case may be, considers critical to protecting and preserving the value of the corporate debtor and managing its operations as a going concern, shall not be terminated, interrupted, or suspended during the moratorium period—except where the corporate debtor has not paid for such supply during the moratorium or in circumstances as may be specified.
Regulation 32 of the CIRP Regulations, 2016, specifies the goods or services considered essential, including electricity, to the extent that it is not a direct input to the output produced or supplied by the corporate debtor.
Supply Of Electricity Essential To Corporate Debtor?
The question before the Tribunal was whether the electricity supply in the present case could be considered a direct input to the output produced or supplied by the corporate debtor. The corporate debtor, a textile mill, required electricity to operate its machines and manufacture yarn and clothes. However, the Tribunal observed that there was no evidence on record to demonstrate that electricity was being used as a direct input to the output produced or supplied by the corporate debtor.
Accordingly, the Tribunal held that the electricity supply in the present case qualifies as an essential supply under Section 14(2) of the Code, read with Regulation 32 of the CIRP Regulations.
The Appellant’s case centered around Section 14(2A) of the Code, which, as discussed above, empowers the IRP or RP to consider certain goods or services as critical for protecting and preserving the corporate debtor. Once such a determination is made, the supply of those goods or services cannot be terminated, interrupted, or suspended during the moratorium period.
The phrase “as may be specified” appears in both Sections 14(2) and 14(2A) of the Code. Under Section 3(32) of the Code, the term “specify” means specified by regulations made by the Board. Consequently, essential supplies must be specified by the Board through regulations. Regulation 32 of the CIRP Regulations explicitly identifies essential supplies, which must be treated and considered in the manner and to the extent specified therein.
The upshot of this discussion is that electricity, when not a direct input to the output produced or supplied by the corporate debtor, qualifies as an essential supply and is clearly protected under Section 14(2) of the Code.
Interplay Between Section 14(2) and Section 14(2A)
The Supreme Court in Sandeep Khaitan, Resolution Professional for National Plywood Industries Limited vs. JSVM Plywood Industries Limited and Anr.2 held that the scope of Sections 14(2) and 14(2A) of the Code is different. Goods or services not covered under Section 14(2) would fall within the ambit of Section 14(2A) if the IRP or RP considers them critical for protecting and preserving the value of the corporate debtor.The IRP/RP must take a decision guided purely by the object of the IBC and the provisions and the factual matrix.
The Appellant relied on an NCLAT judgment in Shailesh Verma, Resolution Professional of Lavasa Corporation Limited and Ors. vs. Maharashtra State Electricity Distribution Company Ltd3 where the corporate debtor was directed to pay electricity charges incurred during the insolvency process. In that case, the Appellant contended that the supply of electricity, being essential, constituted CIRP costs that could be paid after the conclusion of the CIRP process. However, this argument was rejected, as the Tribunal held that once the corporate debtor had determined the electricity supply to be essential and continued by the respondent, it was obligated to pay the electricity dues for the CIRP period. Accordingly, the Adjudicating Authority’s direction to pay the unpaid electricity dues was upheld.
However, the Tribunal distinguished the above case from the present one on the ground that the Resolution Professional in the earlier case had relied on section 14(2A) of the Code, whereas in the present case, the Resolution Professional relied on section 14(2). Therefore, it was in that context that the NCLAT directed the corporate debtor to pay the electricity charges during the CIRP period.
Once services or goods essential for the corporate debtor fall under section 14(2), their supply cannot be discontinued during the currency of the CIRP, even if no payment is made. The payment for such supply falls within the ambit of insolvency costs as per Regulation 31, read with Regulation 32 of the CIRP Regulations, and can be made after the conclusion of the CIRP process. However, if the RP/IRP, as the case may be, considers certain goods or services essential to protect and preserve the value of the corporate debtor under Section 14(2A), and if payment for such supply is not made during the CIRP period itself, the suppliers may terminate, interrupt, or suspend the supply.
The fact that payment for such essential supplies can be made by the Resolution Professional implies that it is within the RP’s discretion to pay for these supplies during the CIRP period or thereafter. However, this does not mean that if the payment is not made, the supplies can be terminated or discontinued during the moratorium period.
Conclusion
The issue discussed above furthers the seminal objective of the Code, which is to keep the corporate debtor as a going concern even after its admission into the CIRP. To ensure this, provisions in the form of Sections 14(2) and 14(2A) of the Code have been incorporated, prohibiting suppliers of essential goods or services from discontinuing or terminating such supply during the moratorium period. The Tribunal pertinently observed that even if no payment is made for such supplies during the CIRP period, the supply cannot be discontinued or terminated.
