M/s. Sri Lakshminarasimha Oil Mills Private Limited & Anr. vs M/s. Northern Power Distribution Company Of Telangana

Orders pronounced, recorded vide separate sheets. In the result, the IA (IBC)/1483/2024 is dismissed.

The present application is filed by Smt. N. Anitha, in her capacity as Managing Director of M/s Sri Lakshminarasimha Oil Mills Private Limited^{11.Corporate Debtor / Applicant} and M/s Nagasatyasolvents Private Limited, against M/s Northern Power Distribution Company of Telangana Limited, represented by the Superintending Engineer (Electrical), Operation, under Sections 60(5) and 53(1) of the Insolvency and Bankruptcy Code, 2016, read with Rule 11 of the National Company Law Tribunal Rules, 2016, seeking the following relief.

It is submitted that Indian Overseas Bank filed a Section 7 application under the IBC, 2016, against M/s Sri Lakshminarasimha Oil Mills Pvt. Ltd., which was admitted on 13.11.2019, with S. Kasthuri Rangan appointed first as IRP and later confirmed as RP.

It is further stated that this Tribunal, vide order dated 13.05.2021, directed the liquidation of Sri Lakshminarasimha Oil Mills Private Limited and appointed S. Kasthuri Rangan as the Liquidator. Thereafter, the Liquidator issued public notices, invited and verified claims, including Rs 147.64 crore from Indian Overseas Bank and Rs 1.41 crore from TSNPDCL, and fixed a reserve price of Rs 12 crore upon receiving valuation reports from various valuers. An e-auction was conducted on 20.10.2021, in which Chittammalla Revathi emerged as the successful bidder.

Chittammalla Revathi paid the full sale consideration of Rs 12 crore on 04.01.2024, along with Rs 13,63,305 as interest for delayed payment, pursuant to the Tribunal’s order dated 01.01.2024. Thereafter, the Liquidator distributed the entire amount in accordance with Section 53 of the Code and handed over possession of the Corporate Debtor’s assets to the successful bidder upon issuance of the sale certificate dated 04.01.2024.

It is stated that the Financial Creditor released their charges on the assets of the Corporate Debtor and issued a No Objection Certificate for the filing of a certificate of charges with the Registrar of Companies. It is further stated that the successful bidder issued a letter dated 01.02.2024 advising the Liquidator to appoint two nominees as directors, and the Liquidator submitted a letter to the said Registrar for appointing the two nominees in accordance with circular No.08/2020 dated 06.03.2020 issued by the Ministry of Corporate Affairs. It is also stated that IA No.452/2024 was filed for the closure of liquidation, which was ordered on 18.04.2024 under Section 45(3)(a).

It is submitted that, after the sale, the 1^st applicant, M/s Sri Lakshminarasimha Oil Mills Private Limited, entered into a lease agreement with the 2^nd applicant, M/S. Nagasatyasolvents Private Limited, for running the Unit.

It is stated that the 2^nd applicant applied to the respondent to restore the previous connection or to provide a new power connection, “informing that the Corporate Debtor, M/s. Sri Lakshminarasimha Oil Mills Private Limited, on the respondent’s advice”, requested a new electricity connection to run the unit. The respondent, vide letter dated 15.06.2024, asked the applicants to pay Rs. 30,67,251 for the extension of supply and issued a sanction letter. The applicants paid on 24.06.2024 and requested a supply. However, the respondent, by letter dated 11.07.2024, demanded Rs. 92,68,500 towards arrears, though the electricity service had been disconnected in 2014, with Rs. 89,683 claimed as of 11.08.2015.

The Applicants submitted that they made several representations requesting the Respondent to provide a new connection upon collecting the national fee and sought a waiver of arrears of Rs 92,68,500 due by the Corporate Debtor; however, such requests were in vain. The Applicants further submitted that no statutory or local bodies are claiming any amounts due by the Corporate Debtor, all having given no-objection, while the Respondent alone insists on amounts for which the Applicants are not liable. Consequently, the Applicants approach this Tribunal to waive the arrears and other charges and direct the provision of power supply to the 2^nd Applicant.

It is submitted that the respondent company is falsely relying on the judgment of the Apex Court in Civil Appeal No. 1815/2020 dated 01.06.2020 filed by TSSPDCL. The judgment was passed in the context of the subject property being sold in an e-auction by the secured creditor under the SARFAESI Act, 2002. Therefore, the respondent cannot claim the benefit of the judgment in its favour, as the same is not applicable in the present case under the provisions of the Insolvency and Bankruptcy Code, 2016.

It is submitted that there are several citations in favour of the applicants, as they are successful auction purchasers, and the entire pre-CIRP and post-CIRP dues cannot be recovered from the applicants under the Code, 2016. Therefore, it is prayed that this Tribunal waive the arrears and other charges claimed by the respondent amounting to Rs. 92,68,500 due by the Corporate Debtor, and direct the respondent to give power supply to the 2^nd applicant as a new service, as the amounts for the new service have already been collected.

In reply, the Respondent disputes the locus standi of Applicant Nos. 1 and 2 in filing the present application under Section 60(5) and 53(1) of the IBC, 2016. This Tribunal, vide order dated 18.04.2024 in I.A. No. 452 of 2024, declared completion and closure of the liquidation proceedings in terms of Regulation 45(3) of the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016. The 1^st applicant company is no longer under the aegis or purview of the IBC, 2016; the prayer sought is beyond the scope and object of the Code. The present application is not maintainable under the law.

It is further submitted that the 2^nd applicant lacks locus standi, as allegedly the 2^nd applicant is a leaseholder of the property belonging to the 1^st applicant company, and nothing has been stated on the right of the 2^nd applicant to file the present application under Section 60(5) of the IBC, 2016. Admittedly, the 2^nd applicant was never part of CIRP or Liquidation Process and, under the guise of the present application, the 2 ^nd applicant seeks to enforce public law and contractual remedy under the provisions of IBC, 2016, which has been declared as impermissible under law. The impugned proceedings dated 11-07-2024 were issued to the 2^nd applicant alone, who had sought a new service connection and, not being a Corporate Debtor and being the affected party, is estopped from seeking a remedy under Section 60(5) of the IBC, 2016; the claim is barred under law.

The Respondent submitted that a going concern sale as effected in the present lis includes assets and liabilities as stated under Regulation 32A of the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016. The said aspect was clarified by the Hon’ble National Company Law Appellate Tribunal, Chennai, in M/s. Vishist Services Ltd. v S.V. Ramani^{22.C.A. (AT) (Insolvency) No. 896 of 2020, order dated 11 February 2022}, enunciating that a going concern sale includes assets and liabilities; therefore, the contention that the 1^st Applicant company is not liable to pay debt arising before the CIRP^{33.Corporate Insolvency Resolution Process} is wholly untenable in the eyes of the law.

The Respondent submitted that the 2^nd applicant, M/s. Naga Satya Solvents Private Limited made an application dated 06.04.2024 seeking extension of power supply to one HT CAT-I(A) Service with contracted maximum demand of 1000 KVA at 11 KV Voltage Level, and a letter dated 10.4.2024 was issued rejecting the application as there exists a pending bill with S.C. No. JGL-018 (KRN-302) for Rs. 76,38,129. Subsequently, the 2^nd applicant addressed a letter to the Chairman & Managing Director seeking an electricity connection to the existing premises, annexing a copy of the orders dated 18.04.2024. Thereafter, an estimate of expenses dated 16.06.2024, issuing Advisory on Probable Expenses for Rs. 30,67,291, and a common letter dated 15.06.2024 granting administrative approval and technical sanction subject to CEIG approval were issued, and Rs. 30,67,290 was remitted on 24-06-2024.

The Respondent further submitted that the impugned proceedings dated 11-07-2024 issued a Notice to pay Rs. 92,68,500 being total outstanding amount of Old S.C. No. JGL-018 (KRN-302) within three weeks. No payments were received, and the Electricity Connection was not extended. The present application under Section 60 r/w 53 of the Insolvency and Bankruptcy Code, 2016, seeking a new or existing connection without insisting on outstanding dues is not maintainable under the facts of law.

It is submitted that the impugned proceedings denying the extension of Electricity Connection vide proceedings dated 11-07-2024 in the absence of payment of the outstanding dues amount of Rs. 92,68,500 were issued solely to the 2^nd applicant herein. The 2^nd applicant is not a Corporate Debtor and has not been part of the CIRP or liquidation process. In the absence of the same, the 2^nd applicant cannot claim any right or remedy under the provisions of IBC, 2016, and the present application is liable to be dismissed.

It is submitted that this Tribunal in IA No. 452/2024 in C.P. (IB) No. 532/7/HDB/2019 dated 18-04-2024 declared closure of the liquidation proceedings in terms of Regulation 45(3)(a) of the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016, and subsequent thereto a company does not remain under the control of the Insolvency and Bankruptcy Code, 2016; therefore, the provisions of the Code cannot extend beyond the liquidation process and this Tribunal is functus officio in terms of Section 60(5) of the Code.

It is further submitted that the applicants are seeking to enact a public law remedy outside the purview of the IBC, 2016. The Hon’ble Supreme Court in Embassy Property Developments Pvt. Ltd. v. State of Karnataka^{44.Civil Appeal No. 9170 of 2019} pointed out the scope and purview of the NCLT/NCLAT and judicial review of administrative action; the provisions of the Code, 2016, do not apply to the present proceedings issued in terms of the Electricity Act, 1910, and the present application is not maintainable either on facts or law.

The Respondent submits that the Applicants’ contention that, having acquired the company under the IBC, 2016, they are not to be burdened with past debts is wholly unsustainable. The object of the IBC, 2016, is to consolidate and amend laws relating to reorganisation and insolvency resolution of corporate persons, partnership firms, and individuals for maximisation of asset value, promotion of entrepreneurship, availability of credit, and balancing stakeholders’ interests. The Code does not provide for the extinguishment of debts prior to the CIRP.

The Respondent submits that Sec. 2(26) and Secs. 30 and 31 of the Code make it clear that the legislature intended to extend the clean slate theory to a company sold under a resolution plan, and that such a resolution plan is specifically binding on all parties, irrespective of whether they participated in the resolution process.

It is submitted that the contention of the Applicants that the present company, having been acquired under the provisions of the IBC, 2016, is not to be burdened with past debts, is wholly unsustainable under law. The object of the IBC, 2016 is “to consolidate and amend the laws relating to reorganisation and insolvency resolution.. for maximisation of value of assets… and balance the interests of all the stakeholders…”. The object of the code was never to provide the extinguishment of debts before the Corporate Insolvency Resolution Process. In the absence of any statutory provisions, the Applicant's eligibility to extinguish their past debts is wholly untenable under law.

Sec. 2(26), Sec. 30 and Sec. 31 stipulate that a resolution plan shall provide for payment of debts and, upon approval, shall be binding on the corporate debtor and its employees, members, creditors, including the Central Government, State Government, or local authority. The binding nature of Sec 31 is restricted to Chapter II and is not extended to Chapter III. Regulation 32A of the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016 provides for sale as a going concern, without provisions similar to Sec 31; therefore, the contention lacks statutory force.

The Respondent submits that the contention of the Applicants that there exists various judgements stating that the entire pre-Corporate Insolvency Resolution Process and Post-Corporate Insolvency Resolution Process debts cannot be recovered are of no significance, in as much as the said judgements do not analyse the provisions of the code vis-à-vis Regulation 32A of the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016, and cannot be termed to have precedential value. It is a settled principle of law that a judgment would lose its precedential value if they fail to take into consideration provisions of law pertaining to the said issue at hand, as observed in Sandeep Kumar Bafna V. State of Maharashtra^{55.MANU/SC/0239/2014: (2014) 16 Supreme Court Cases 623, paragraph 19.}

Similarly, the Hon'ble NCLAT, Chennai, in Mis. Vishist Services Ltd. v S.V. Ramani, C.A.(AT) (Ins) No. 896 of 2020 Dt. 11-02-2022 had clearly pointed out that a going concern sale includes the basket of assets and liabilities.

We have carefully perused the documents placed on record. We have given our thoughtful and due consideration to the matter under consideration.

To recapitulate the factual matrix, the Corporate Debtor was admitted into liquidation pursuant to the Order dated 13.05.2021. Following the commencement of liquidation, the Liquidator issued public notices, invited claims, and verified all submissions, including the claims of Rs. 147.64 crore from Indian Overseas Bank and Rs. 1.41 crore from TSNPDCL.

It is undisputed that the Liquidator conducted the sale of the Corporate Debtor as a going concern through an e-auction held on 20.10.2021. In the said e-auction, Mrs. Chittimalla Revathi was declared the successful bidder with a bid amount of Rs. 12 crores.

The successful bidder remitted the entire bid amount of Rs. 12 crores on 04.01.2024, along with interest of Rs. 13,63,305 towards delayed payment, in compliance with the Order dated 01.01.2024 passed by this Tribunal.

The Liquidator distributed the entire realisation in accordance with Section 53 of the IBC, 2016, and handed over possession of the assets of the Corporate Debtor to the successful bidder. The Sale Certificate^{66.Page no.11-12 of the Application} was issued to her on 04.01.2024.

Thereafter, the Liquidator filed I.A. No. 452/2024 seeking closure of the liquidation process of the Corporate Debtor on account of the successful sale of the Corporate Debtor as a going concern.

Vide Order dated^{77.Page no 17-23 of the Application.} 18.04.2024, this Tribunal directed the closure of the liquidation proceedings in respect of the Corporate Debtor, Sri Lakshminarasimha Oil Mills Private Limited, in accordance with Regulation 45(3) of the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016.

It is noted that Applicant No. 1, M/s Sri Lakshminarasimha Oil Mills Private Limited, entered into a Lease Agreement^{88.Page no. 24-59 of the Application.} dated 01.04.2024 with Applicant No. 2, M/s Nagasatya Solvents Private Limited, in respect of the subject premises.

Pursuant to the lease, M/s Nagasatya Solvents Private Limited applied on 06.04.2024 for a fresh electricity connection for the premises acquired through NCLT proceedings and leased under the Agreement dated 01.04.2024. During a joint inspection, the Respondent noted that an existing service connection, SC No. JGL-018 (KRN-302), in the name of M/s Lakshminarasimha Oil Mill Pvt. Ltd., remained attached to the property with outstanding statutory arrears of Rs. 7,638,129. Consequently, the Superintending Engineer, by letter dated 10.04.2024, rejected the request for a new electricity connection.

Following the rejection, Applicant No. 2 submitted a representation^{99.Page no. 14-16 of the Application.} On 02.05.2024, to the Chairman and Managing Director of the Respondent, seeking clarification on the refusal of the TS-iPASS Application No. SML0140022136943. In this representation, the Applicant referred to the Tribunal’s Order dated 18.04.2024, closing the liquidation proceedings.

The Respondent, through a letter dated^{1010.Page no 60-62 of the Application.} 15.06.2024, issued an Advisory Memo indicating the estimated expenses and probable charges of Rs. 30,67,291 for the extension of supply and a temporary connection, expressly stating that it was not a demand notice. On the same day, administrative approval and technical sanction were granted, subject to CEIG approval. The Applicant thereafter remitted Rs. 30,67,290 and informed the Respondent through a letter dated 24.06.2024.

It is noted that, by a letter dated^{1111.Page no 67-69 of the Application.} 11.07.2024, the Respondent claimed payment of Rs. 92,68,500 towards arrears pertaining to the old service connection SC No. JGL-018 (KRN-302) in the name of M/s Lakshminarasimha Oil Mill Pvt. Ltd., and stated in the same letter that a prior notice regarding the same arrears had been issued on 10.04.2024. In response, the Applicant contended that, having acquired the property pursuant to NCLT proceedings, it is not liable for payment of the old arrears.

It is further mentioned in the said letter that the Respondent relied upon the decision of the Hon’ble Supreme Court in TSSPDCL v. Srigdhaa Beverages, wherein it was held that electricity dues are statutory in nature and may be recovered from a purchaser where the property is sold on an “as is where is” basis. The Respondent also relied upon a legal opinion invoking Clause 8.4 of the GTCS to contend that the arrears pertaining to the premises were enforceable against the new owner.

Before examining the substantive reliefs, the issue of maintainability must be addressed. The Applicant, as the auction purchaser of the assets sold during liquidation, seeks directions for the grant of a fresh electricity connection. Since the dispute stems directly from the liquidation process and is closely tied to it, the jurisdiction of the National Company Law Tribunal under Section 60(5)(c) of the Insolvency and Bankruptcy Code is broad enough to adjudicate the matter. Accordingly, the Application is held to be maintainable.

The principal issue that arises for consideration is whether a purchaser of assets acquired during the liquidation of a Corporate Debtor can be compelled to clear the past electricity dues of the Corporate Debtor as a condition for obtaining a fresh electricity connection.

It is an admitted position that the electricity dues of the Corporate Debtor constitute operational debt within the meaning of the IBC. The claim in respect of such dues was duly verified and admitted by the Liquidator, and the proceeds realised from the liquidation process were distributed in accordance with Section 53 of the Code, strictly adhering to the statutory waterfall mechanism.

However, it is noted that the sale of the assets of the Corporate Debtor was conducted on an “As Is Where Is”, “As Is What Is”, “Whatever There Is”, and “Without Recourse” basis, as expressly stipulated in Annexure-II: Information Sheet on Assets Put Up for Auction forming part of the e-auction process document dated 04.08.2021. The said clause clearly provides that all local taxes, maintenance charges, electricity and water dues, and any other statutory or incidental liabilities, whether outstanding as on the date of sale or arising thereafter, were required to be ascertained and borne by the Successful Bidder. The relevant extract from Annexure-II is reproduced below:

The Applicant, having accepted these terms at the time of purchase, cannot now seek directions that contradict the obligations they voluntarily undertook. By agreeing to the auction conditions, the Applicant assumed responsibility for any electricity-related liabilities attached to the asset as of that date. Accordingly, the Respondent, i.e., the electricity distribution company, cannot be compelled to waive, absorb, or adjust such dues.

Moreover, it is noted that the Respondent’s letter dated 11.07.2024 reproduces portions of the undertaking furnished by the Applicant, wherein the Applicant agreed to abide by the legal opinion of TGNPDCL’s counsel concerning the arrears of Laxmi Narshima Oil Mill Pvt. Ltd. The relevant extracts of the undertaking are reproduced below.

The said letter further records that the Senior Advocate representing TGNPDCL has opined that TGNPDCL, being the electricity distribution company, is entitled to recover the outstanding electricity dues of M/s Laxmi Narasimha Oil Mill Pvt. Ltd., about Service Connection No. JGL-018 (KRN-302), from the new owner or purchaser in terms of Clause 8.4 of the GTCS.

The aforesaid letter also sets out the computation of the outstanding arrears, as reflected in the table reproduced below.

However, upon perusal of the material available on record, it is evident that the Applicant has not placed any evidence to demonstrate that the amounts claimed by the Respondent, as reflected in the above table, pertain to the period prior to the commencement of the CIRP.

It is evident that the assets of the Corporate Debtor were sold during liquidation on an “as is where is”, “as is what is”, “whatever there is”, and “without recourse” basis, requiring the Successful Bidder to bear all statutory dues, including electricity charges, and having accepted these terms in the auction cannot subsequently seek directions from this Tribunal to avoid such liabilities. Further, the Applicant had undertaken to abide by the legal opinion obtained by the Respondent regarding the outstanding electricity dues. In these circumstances, we find no merit in the present Application seeking a fresh electricity connection without settlement of the outstanding dues.

Accordingly, I.A. (IBC) No. 1483 of 2024 in C.P. (IB) No. 532/07/HDB/2019 is dismissed.