AI Structured Summary
Not yet generated for this judgment
Judgment
ORDER
Per: Ravikumar Duraisamy, Member
The Applicant is the Successful Resolution Applicant of the erstwhile Corporate Debtor. The Resolution Plan of the Applicant was approved by the Committee of Creditor of the Corporate Debtor and thereafter it was also approved by this Tribunal vide its Order dated October 14, 2019. After satisfying all clauses of the Resolution Plan, the Applicant took complete possession of the Corporate Debtor on July 7, 2020.
The Respondent No. 1 (R1) is Maharashtra State Electricity Distribution Company Ltd. (“MSEDCL”) wherein MSEDCL is responsible for supply of electricity to the unit situated at E1 & E5, Chincholi MIDC, Chincholi, Solapur (“said Unit”). The Respondent No. 2 (R2) was appointed as the Resolution Professional of the erstwhile Corporate Debtor, Ambey Iron Pvt. Ltd.
This is an Application filed under section 60(5) of the Insolvency and Bankruptcy code, 2016 (hereinafter referred to as “IB Code”) read with rule 11 of the National Company Law Tribunal Rules, 2016. Pursuant to the Order dated October 14, 2019 passed by this Tribunal approving the Resolution Plan of the Applicant, the Applicant approached the Respondent No. 1 for a new electricity connection at the said Unit. However, the Respondent No. 1, for the first time, on January 24, 2020 informed the Applicant that the erstwhile Corporate Debtor has arrears amounting to Rs. 2,16,847/- (Rupees Two Lakhs Sixteen Thousand Eight Hundred Forty Seven Only) on account of Additional Energy Charges (“AEC”) which were made applicable from the month of August, 2013 till January 2014 pursuant to a certain Order passed by the Maharashtra State Electricity Regulatory Commission in November 2017, i.e prior to the initiation of CIRP. At that time, the Applicant brought to the attention of the Respondent No. 1 to the Order dated October 14, 2019 passed by this Tribunal. Despite the same, the Respondent No. 1 has refused to provide electricity connection to the Applicant. Hence this Application for seeking appropriate directions of this Adjudicating Authority, prayed following:
i.Declare that the Order dated October 14, 2019 passed by this Tribunal thereby approving the Resolution Plan is applicable to the Respondent No. 1;
ii.Refund the amount of Rs. 2,17,000/- (Rupees Two Lakhs Seventeen Thousand Only) paid by the Applicant to the Respondent No. 1 under protest;
iii.In the alternative to prayer clause (ii), direct the Respondent No. 1 to credit an amount of Rs. 2,17,000/- (Rupees Two Lakhs Seventeen Thousand Only) into the Bank Account of Bhadrashree Steel & Power Ltd.
iv.Direct the Respondent No. 1 to issue a fresh “No Objection Certificate” and “No Dues Certificate” in favour of Ambey Iron Pvt. Ltd.;
The Resolution Plan of the Applicant as approved by the Committee of Creditors of the erstwhile Corporate Debtor was approved by this Tribunal vide its Order dated October 14, 2019. Therefore, this Tribunal has the jurisdiction to hear and decide the present Application.
Submissions made by Applicant by way of IA 1444 of 2020:
In the year 2017, Oriental Bank of Commerce filed an Application under Section 7 of the Insolvency and Bankruptcy Code, 2016 against the Ambey Iron Pvt. Ltd., being the then Corporate Debtor. The said Company Petition was admitted vide an Order dated March 22, 2018 thereby initiating Corporate Insolvency Resolution Process (“CIRP”) against the Corporate Debtor.
After due consideration the Resolution Plan was approved by the Committee of Creditors of the Corporate Debtor by 100% majority during its 9th meeting.
The aforementioned Order dated October 14, 2019 specifically states at para 18 that no claim can be added in the proposed Resolution Plan and that all such claims are subject to Clause 10 of the Resolution Plan. The contents of the said Order dated October 14, 2019 at para 18 is reproduced herein for ready reference:
18.That, the Resolution Applicant in one of the Clauses has raised an apprehension about the claim of any Creditor, yet to be raised, being not lodged during Corporate Insolvency Resolution Process period before the Ld. RP. It is hereby made clear that all the claims lodged, considered and accepted during the Corporate Insolvency Resolution Process are already made part of the Resolution Plan, therefore, subsequent to the approval of the Resolution Plan by the CoC, no such claim can be added in the proposed Resolution Plan presently under discussion.
The electricity connection at the said Unit was disconnected on December 31, 2014 on account of non-payment of electricity dues. As a result, the office of the R1 deducted a total amount of Rs.29,78,500/- (Rupees Twenty-Nine Lakhs Seventy-Eight Thousand Five Hundred Only) from the security deposit of Rs.1,08,14,570/-(Rupees One Crore Eight Lakhs Fourteen Thousand Five Hundred Seventy Only) and the balance amount was refunded to Ambey Iron Pvt. Ltd. Pursuant to the same, the office of the R1 also issued a No Dues Certificate on March 11, 2015.
Notwithstanding the issuance of ‘No Dues Certificate’ dated 11.03.2015, it is submitted that the R1 maliciously raised arrears to the tune of Rs. 2,16,847/- to the Applicant, whereas the monies were otherwise recoverable from the Corporate Debtor. The R1 never raised any claim before the R2 towards the recovery of any arrears.
However, in order to mitigate the losses incurred by the Applicant as a direct consequence of the actions of the Respondent, the Applicant made a payment of Rs. 2,17,000/- to R1 under protest, against which the R1 also issued a receipt on July 16, 2020
The Applicant states and submits that since the passing of the Order dated 14.10.2019, the Applicant has complied with the terms and conditions as stated in the Resolution Plan. As such, the Applicant has now taken over the assets and operations of the Corporate Debtor where the erstwhile management of the Corporate Debtor is now replaced by the Applicant. Thus, the Applicant is seized of the Corporate Debtor by way of the Resolution Plan. Even so, the Applicant is subjected to the liabilities which otherwise arise out of the actions/inactions of the erstwhile management. The situation faced by the Applicant has in fact laid the groundwork for the introduction and effective implementation of Section 32A of the Code.
The Standing Committee on Finance (2019-2020), in its Sixth Report, also observed that an amendment was required to safeguard the position of the Resolution Applicant(s) by ring-fencing them from prosecution and liabilities under offences committed by the erstwhile promoters. The Standing Committee further observed that there was a need for treating the company of the Corporate Debtor as a cleansed entity for cases which result in change in the management or control of the Corporate Debtor, so that such Resolution Applicants would have a fair chance to revive the unit which otherwise would directly go into liquidation. The Committee believed that such ring-fencing is essential to achieve revival or resolution without imposing additional liabilities on the Resolution Applicant, arising from malafide acts of the previous promoter or management.
The Applicant emphasized upon the position in law is also cemented by the Hon’ble Supreme Court in the matter of Committee of Creditors of Essar Steel India Limited vs. Satish Kumar Gupta & Ors (CIVIL APPEAL NO. 8766-67 OF 2019) wherein the Hon’ble Apex Court has held that:
“a successful resolution applicant cannot suddenly be faced with undecided claims after the resolution plan being submitted by him. All claims must be submitted to and decided by the resolution professional so that a prospective resolution applicant knows exactly what has to be paid, it leaves no room for doubt that no creditor can later on make claims or demand any sum pertaining to a period prior to passing of resolution plan.”
A similar Order dated 26.11.2020 was passed by the Hon’ble Bombay High Court in the matter of GGS Infrastructure Pvt. Ltd. vs Commissioner of CGST and Central Excise (WP-LD-VC-NO.268 OF 2020) in terms of Income Tax dues arising pursuant to passing of the Resolution Plan. By way of the said Order dated 26.11.2020, the Hon’ble Bombay High Court observed that
31.From a conjoint reading of section 31(1) and section 238 of the Code, it is quite evident that the provisions of the Code shall have overriding effect. The non obstante clause in section 238 and the use of the expression “shall” in sub section (1) of section 31 makes it abundantly clear that a resolution plan approved by the committee of creditors and further approved (or sanctioned) by the adjudicating authority would be binding on all creditors including the Central Government, any State Government or any local authority to whom a debt in respect of the payment of dues arising under any law for the time being in force, such as authorities to whom statutory dues are owed.
The Applicant submits that the Applicant has incurred heavy interest on per day basis as also consequential expenses on account of the security and labour cost. The total expense incurred from the date of possession, i.e July 7, 2020 till July 17, 2020 is about Rs. 4,30,000/-which is solely as a consequence of the ignorance and high-handedness of the R1.
Submissions Made by Respondent by way of Affidavit in Reply:
The Respondent submits that Corporate Debtor was a High-Tension consumer of the Respondent bearing consumer No. 331519051140. As the Corporate Debtor failed to make payment towards electricity dues; electricity connection at the premises of Corporate Debtor was temporarily disconnected on 20.10.2014 and permanently disconnected on 31.12.2014.
Maharashtra Electricity Regulatory Commission (MERC) vide its orders dated 3rd, 4th and 5th September, 2013 directed MSEDCL to recover AEC-1, AEC-2, AEC-3, AEC-4 and Additional FAC from its consumers in six equal monthly installments from September, 2013 to February, 2014 and that same was to be recovered from the consumer over and above the electricity consumed by the consumer.
Respondent therefore had recovered the charges of AEC-1 to AEC-4 from the Corporate Debtor for the billing period beginning from August 2013 to December 2013 i.e. for five instalments in five months and the Respondent has not recovered sixth instalment of the AEC charges for the billing month of January 2014 from the Corporate Debtor. Thus, one installment towards AEC charges remain unpaid. Meanwhile the Government of Maharashtra vide its GR dated 29th January 2014 granted general subsidy to the consumer towards tariff including subsidy for AEC charges. Before the Government Resolution dated 29th January, 2014, the Respondent had already recovered five installments of AEC's in five monthly bills from the Corporate Debtor. Only one installment of AEC was pending to be recovered by the Respondent from the Corporate Debtor. The Respondent made implication of the said GR dated 29th January 2014 and therefore the Respondent has not recovered the AEC charges for the billing month of January 2014 from the Corporate Debtor and also reduced the tariff of the Corporate Debtor for the months beginning from January, 2014 to November, 2014.
Since, electricity connection at the premises of Corporate Debtor was disconnected, MSEDCL had refunded balance amount of security deposit after deducting the outstanding bill amount to the Corporate Debtor and also gave No due certificate to the corporate Debtor dated 11th March, 2015.
Since, connection at the premises of Corporate Debtor was disconnected prior to the clarificatory order of MERC, therefore, MSEDCL debited the account of Corporate Debtor for Rs.2,16,847/-in the consumer personal ledger of the Corporate Debtor. Resolution plan of the Corporate Debtor was approved by the Committee of Creditors and accordingly by the NCLT on 14th October, 2019. Sometime in January, 2021 officer of Resolution Applicant visited the office of MSEDCL for electricity connection at the premises of Corporate Debtor and for the first time MSEDCL came to know about initiation of CIRP process of the Corporate Debtor and Resolution plan being approved by NCLT. Immediately, MSEDCL vide its letter dated 24th January, 2020 (Exhibit E to IA 1444 of 2020) informed the Corporate Debtor that amount of Rs.2,16,849/- are arrears towards electricity dues and requested the Corporate Debtor to make payment of the same.
Corporate Debtor vide its letters dated 26th January, 2020 and 13th July, 2020 (exhibit F and H to IA 1444 of 2020 respectively) sought LT connection at the premises of Corporate Debtor to which Respondent vide its letter dated 14th July, 2020 once again requested Corporate Debtor to make payment against outstanding dues of the Corporate Debtor. Corporate Debtor on 16th July, 2020 paid the said outstanding amount "under protest" and filed Application form A-I bearing no. 27091794 on 22nd July, 2020 (Exhibit B to Affidavit in Reply to IA 1444 of 2020) for reconnection at the premises of Corporate Debtor. It is pertinent to note that one of the conditions prior to grant of electricity was "connection will be released only after payment of arrears (if any) on the said premises." and that Corporate Debtor has accepted the said condition while making application for electricity connection. Pursuant to the Application made by Corporate Debtor, electricity connection at the premises of Corporate Debtor was restored on 21st August, 2020.
Emphasize has been placed by Respondent on Section 56 (1) of Electricity Act, 2003 MSEDCL is duty bound to discontinue the supply of electricity unless full outstanding charges and expenses are paid by the Corporate Debtor. Relevant extract of Section 56(1) is as follows:
"Section 56. (Disconnection of supply in default of payment): -- (1) Where any person neglects to pay any charge for electricity or any sum other than a charge for electricity due from him to a licensee or the generating company in respect of supply, transmission or distribution or wheeling of electricity to him, the licensee or the generating company may, after giving not less than fifteen clear days' notice in writing, to such person and without prejudice to his rights to recover such charge or other sum by suit, cut off the supply of electricity and for that purpose cut or disconnect any electric supply line or other works being the property of such licensee or the generating company through which electricity may have been supplied, transmitted, distributed or wheeled and may discontinue the supply until such charge or other sum, together with any expenses incurred by him in cutting off and reconnecting the supply, are paid.......” Regulation 10.5 of Maharashtra Electricity Regulatory Commission (Electricity Supply Code and other Conditions of Supply) Regulations 2005 stipulates:
Regulation 10.5: "Any charge for electricity or any sum other than a charge for electricity due to the Distribution Licensee which remains unpaid by a deceased consumer or the erstwhile owner / occupier of any premises, as a case may be, shall be a charge on the premises transmitted to. the legal representatives / successors-in-law or transferred to the new owner / occupier of the premises, as the case may be, and the same shall be recoverable by the Distribution Licensee as due from such legal representatives or successors-in-law or new owner / occupier of the premises, as the case may be;.....”
Maharashtra Electricity Regulatory Commission (Electricity Supply Code and other Conditions of Supply) Regulations 2005 have a statutory character and provides that unpaid electricity dues or charge of the Distribution Licensee constitutes a charge on the premises of the erstwhile owner! occupier of premises and that such charge on the premises shall be transmitted to the legal representatives! successors in law of the premises. Therefore, MSEDCL being the Distribution Licensee is at liberty to recover arrears of the erstwhile consumer from its successor in law/ legal representatives i.e. Resolution Applicant herein.
Corporate Debtor had while applying for reconnection of electricity has filled Form A-I dated 22nd July, 2020 and in that Application it is clearly stated under column "instructions for filling the form" that connection will be released only after arrears on the said premises has been paid by the Applicant and that after having full knowledge about there being outstanding arrears of the Corporate Debtor, Corporate Debtor has accepted the said condition and cannot later on deny from complying with the same and pray for refund/ set-off of the amount paid by Corporate Debtor for reconnection.
Further, such condition by Distribution Licensee cannot be termed as arbitrary and the same has been upheld by Hon'ble Supreme Court in Paschimanchal Vidyut Vitran Nigam Ltd. Vs. DVS Steels and Alloys Private Limited in Civil Appeal No. 6565 of 2008 has held that:
"11.A stipulation by the distributor that the dues in regard to the electricity supplied to the premises should be cleared before electricity supply is restored or a new connection is given to a premises, cannot be termed as unreasonable or arbitrary. In the absence of such a stipulation, an unscrupulous consumer may commit defaults with impunity, and when the electricity supply is disconnected for non-payment, may sell away the property and move on to another property, thereby making it difficult, if not impossible for the distributor to recover the dues. Having regard to the very large. number of consumers of electricity and the frequent moving or translocating of industrial, commercial and residential establishments, provisions similar to clause 4.3(g) and h) of Electricity Supply Code are necessary to safeguard the interests of the distributor. We do not find anything unreasonable in a provision enabling the distributor/supplier, to disconnect electricity supply if dues are not paid, or where the electricity supply has already been disconnected for non-payment, insist upon clearance of arrears before a fresh electricity connection is given to the premises. It is obviously the duty of the purchasers/occupants of premises to satisfy themselves that there are no electricity dues before purchasing, 'occupying a premises. They can also incorporate in the deed of sale or lease, appropriate clauses making the vendor/lessor responsible for clearing the electricity dues up to the date of sale/lease and for indemnity in the event they are made liable. Be that as it may.
12.In this case, when the first respondent, who was the purchaser of a sub-divided plot, wanted a new electricity connection for its premises, the appellant informed the first respondent that such connection will be provided only if the electricity dues are paid pro-rata. They were justified in making the demand."
Further, where the statutory rules or terms and conditions of supply which are statutory in character authorizes the licensee to demand from the consumer claiming reconnection or fresh electricity connection, the arrears amount is due by the previous owner/occupier in regard to supply of electricity to such premises the licensee can recover the arrears so long as such Rules and Regulations or the terms and conditions are not arbitrary and unreasonable.
Respondent has lakhs of consumers in the State of Maharashtra and with frequent moving or translocating of industrial, commercial and residential consumers, if such a stipulation for recovery of outstanding arrears is not provided then it will be extremely difficult for the Respondent to recover the outstanding arrears of such defaulting consumers and the distribution licensee would be left with virtually no recourse whatsoever and which in turn will result into huge loss to the public exchequer.
"No Due Certificate" was issued by the Respondent to Corporate Debtor on 11th March, 2015 but it is pertinent to note that MERC vide its Order dated 13th July, 2017 had directed MSEDCL to recover amount for the month of February, 2014 and therefore the said amount towards AEC became due to the Corporate Debtor in 2017 and Applicant cannot take benefit of the said No due certificate and shy away from making payment to legitimate statutory dues.
The Respondent rebutted Applicant’s arguments and emphasize placed upon the judgement dated 15th November, 2019 of Hon'ble Apex Court passed in Civil Appeal No. 8766/67 of 2019 in the case of Committee of creditors of Essar Steel Ltd. versus Satish Kumar Gupta & Ors. Paragraph no. 102 is reproduced hereunder:
"102.So far as Dakshin Gujarat Vij Co. (Respondent No. 11 in Civil Appeal Diary No. 24417 of 2019), State Tax Officer (Respondent No. 12 in Civil Appeal Diary No. 24417 of 2019), Gujarat Energy Transmission Corporation Ltd. (Respondent No. 17 in Civil Appeal Diary No. 24417 of 2019) and Indian Oil Corporation Ltd. (Respondent No. 18 in Civil Appeal Diary No. 24417 of 2019) are concerned, the 6 resolution professional admitted the claim of the abovementioned respondents notionally at INR I on the ground that there were disputes pending before various authorities in respect of the said amounts. However, the NCLT through its judgment dated 08.03.2019 directed the resolution professional to register the entire claim of the said respondents. The NCLAT in paragraphs 43 and 196 of the impugned judgment upheld the order passed by the NCLT as aforesaid and admitted the claim of the above-mentioned respondents. We therefore hold that this part of the impugned judgment deserves to be set aside on the ground that the resolution professional was correct in only admitting the claim at a notional value of INR 1 due to the pendency of disputes with regard to these claims." It is humbly to be noted that the said judgment does not apply to the present case as in the present case there is no dispute pending with regards to the amount of outstanding arrears to be paid by Corporate Debtor to the Respondent and therefore in the interest of equity and justice, Application taken out by the Applicant be dismissed.
In the view of factual matrix of present case the position in law is settled by Hon’ble Apex Court in the matter of Committee of Creditors of Essar Steel India Limited vs. Satish Kumar Gupta & Ors (CIVIL APPEAL NO. 8766-67 OF 2019) para 15 supra. Therefore, there is no room for doubt that no creditor can later on make claims or demand any sum pertaining to a period prior to passing of resolution plan.
The Applicant has successfully taken over the assets and operations of the Corporate Debtor by effectively complying with the Resolution Plan. Thus, only the name of the Corporate Debtor is retained and whereas the management of the Corporate Debtor is not at all related to the erstwhile management. Therefore, as soon as the Order approving the Resolution Plan was passed by this Tribunal, and the Plan was put into effect, Section 32A of the Code is attracted. Therefore, R1 is barred from raising any arrears against the Corporate Debtor/Applicant at this juncture. Section 32A also puts responsibility on the Corporate Debtor and bona fide purchaser to co-operate in investigation. In Paragraphs 279 to 280 of the Judgment in the matter of Manish Kumar v. Union of India W.P. (C) No.26 OF 2020 dated 19.01.2021 Hon’ble Supreme Court observed in the above context as under:
“279.The contentions of the petitioners appear to be that this provision is constitutionally anathema as it confers an undeserved immunity for the property which would be acquired with the proceeds of a crime. The provisions of the Prevention of Money-Laundering Act, 2002 (for short, the PMLA) are pressed before us. It is contended that the prohibition against proceeding against the property, affects the interest of stakeholders like the petitioners who may be allottees or other creditors. In short, it appears to be their contention that the provisions cannot stand the scrutiny of the Court when tested on the anvil of Article 14 of the Constitution of India. The provision is projected as being manifestly arbitrary. To screen valuable properties from being proceeded against, result in the gravest prejudice to the home buyers and other creditors. The stand of the Union of India is clear. The provision is born out of experience. The Code was enacted in the year 2016. In the course of its working, the experience it has produced, is that, resolution applicants are reticent in putting up a Resolution Plan, and even if it is forthcoming, it is not fair to the interest of the corporate debtor and the other stake holders.
280.We are of the clear view that no case whatsoever is made out to seek invalidation of Section 32A. The boundaries of this Court’s jurisdiction are clear. The wisdom of the legislation is not open to judicial review. Having regard to the object of the Code, the experience of the working of the code, the interests of all stakeholders including most importantly the imperative need to attract resolution applicants who would not shy away from offering reasonable and fair value as part of the resolution plan if the legislature thought that immunity be granted to the corporate debtor as also its property, it hardly furnishes a ground for this this Court to interfere. The provision is carefully thought out. It is not as if the wrongdoers are allowed to get away. They remain liable. The extinguishment of the criminal liability of the corporate debtor is apparently important to the new management to make a clean break with the past and start on a clean slate. We must also not overlook the principle that the impugned provision is part of an economic measure. The reverence courts justifiably hold such laws in cannot but be applicable in the instant case as well. The provision deals with reference to offences committed prior to the commencement of the CIRP. With the admission of the application the management of the corporate debtor passes into the hands of the Interim Resolution Professional and thereafter into the hands of the Resolution Professional subject undoubtedly to the control by the Committee of Creditors. As far as protection afforded to the property is concerned there is clearly a rationale behind it. Having regard to the object of the statute we hardly see any manifest arbitrariness in the provision.”
Thus constitutional validity of Section 32A has been upheld.
In view of the above and taking into consideration the intent of the insertion of Section 32A, the submission of R1 is against the principles of Section 32A of the Insolvency and Bankruptcy Code, 2016.
Therefore, we direct the R1 to credit an amount of Rs. 2,17,000/-(Rupees Two Lakhs Seventeen Thousand Only) which was paid under protest by the Applicant, into the Bank Account of Bhadrashree Steel & Power Ltd. in HDFC Bank Ltd., Himayatnagar, Hyderabad Branch, Account No. 50200029204741, IFSC Code: HDFC0000081 or alternatively this amount can be adjusted towards future bills. As effect of same issue, a fresh “No Objection Certificate” and “No Dues Certificate” in favour of Ambey Iron Pvt. Ltd.
Ordered Accordingly. The present IA No.1444 of 2020 In C.P. (IB) No.1704/MB/C-II/2017 is Allowed.