NCLAT Ruling: NCLAT Directs Resolution Professional to Settle Outstanding Electricity Dues Under IBC

The National Company Law Appellate Tribunal (NCLAT) continues to play a critical role in shaping the implementation of the Insolvency and Bankruptcy Code (IBC). In a recent NCLAT ruling, the Delhi Bench of NCLAT, led by Justice Ashok Bhushan, addressed a significant issue regarding the payment of electricity dues incurred by the Corporate Debtor during the moratorium period of the Corporate Insolvency Resolution Process (CIRP). This case involved Earthcon Infracon Pvt. Ltd., which was under CIRP, and Noida Power Company Ltd. (NPCL), raising concerns about whether current dues must be settled even during the protective moratorium phase provided by Section 14(1) of the IBC.

The NCLAT ruling sheds light on the responsibilities of the Resolution Professional (RP) in managing ongoing dues during insolvency proceedings, ensuring that essential utilities like electricity are not disrupted, provided there is no default in the payment of current dues.

The case arose when Earthcon Infracon Pvt. Ltd. (Corporate Debtor) entered into the Corporate Insolvency Resolution Process (CIRP), and a Resolution Professional (RP) was appointed to manage its affairs during the moratorium period. During this time, Noida Power Company Ltd. (NPCL) issued multiple notices regarding the non-payment of post-CIRP electricity dues. The RP initially sought relief from the Adjudicating Authority, requesting that the electricity not be disconnected and proposing an instalment plan for the dues.

Despite the interim orders passed by the Adjudicating Authority, preventing NPCL from disconnecting the electricity, the issue escalated as no resolution for the payment schedule was reached. NPCL filed further applications to vacate the interim orders, and the RP filed applications to permanently stay NPCL’s disconnection notices.

Eventually, the NCLAT ruling ordered that the RP should collect electricity dues from the homebuyers and remit them to NPCL. It was also directed that the RP could take necessary steps in case of non-payment. However, the issue of electricity disconnection for common areas such as lifts and corridors remained under dispute, leading to additional hearings and orders from the Adjudicating Authority.

The core issue before the Tribunal was whether the Appellant, Noida Power Company Ltd. (NPCL), was lawfully entitled to demand payment of current electricity dues incurred by the Corporate Debtor during the moratorium period. Additionally, NPCL sought to determine whether it had the right to disconnect the electricity connection if the dues remained unpaid.

The NCLAT ruling clarified that while the Corporate Debtor is under the protective shield of the moratorium as outlined in Section 14(1) of the Insolvency and Bankruptcy Code (IBC), this protection does not absolve the debtor from paying current dues. The Tribunal highlighted that the benefit of continued electricity supply, or any essential utility, is contingent upon there being no default in the payment of current dues. Therefore, the Resolution Professional (RP) has an obligation to ensure these payments are made to avoid disruptions.

In this specific NCLAT ruling, the Tribunal referred to previous judgements, including Shailesh Verma vs Maharashtra State Electricity Distribution Company and Sanskriti Allottee Welfare Association & Ors vs Gaurav Katiyar, both of which established that the RP is responsible for the settlement of such dues. These cases underscored the importance of ensuring that utilities remain functional while the Corporate Debtor undergoes insolvency resolution, but only when current dues are settled.

This NCLAT ruling has significant implications for both Resolution Professionals (RP) and creditors, particularly utility providers like electricity companies. It reinforces the principle that while the moratorium under Section 14(1) of the IBC protects the Corporate Debtor from legal actions during the insolvency process, this protection is conditional upon the payment of ongoing dues.

For Resolution Professionals, the NCLAT ruling serves as a reminder of their duty to manage not only the debtor’s assets but also to ensure that essential services like electricity, which are critical to the operation of the Corporate Debtor, are maintained. Failing to pay such dues can lead to the discontinuation of services, which could further complicate the Corporate Insolvency Resolution Process (CIRP). Moreover, the Tribunal’s reliance on past rulings reaffirms the obligation of the RP to collect dues from residents or other stakeholders when needed, as seen in this case with the homebuyers.

On the other hand, utility companies are assured that they are entitled to receive payments for services rendered during the CIRP. The NCLAT ruling makes it clear that utility providers are not obligated to continue offering their services free of charge, even when the Corporate Debtor is under moratorium protection, provided there are unpaid current dues.

The recent NCLAT ruling involving Noida Power Company Ltd. and Earthcon Infracon Pvt. Ltd. highlights the delicate balance between protecting the interests of the Corporate Debtor during insolvency and ensuring that current dues, such as electricity payments, are not neglected. By directing the Resolution Professional to pay the outstanding electricity dues or arrange a phased payment plan, the Tribunal has emphasized the importance of maintaining essential services while ensuring that obligations are met.

This NCLAT ruling serves as a precedent for future cases involving utility dues during the Corporate Insolvency Resolution Process (CIRP). It underscores the role of the Resolution Professional in safeguarding the debtor’s operations while simultaneously addressing the rights of creditors, including utility providers. Ultimately, the decision provides clarity on how Section 14(1) of the Insolvency and Bankruptcy Code (IBC) should be interpreted in relation to ongoing financial obligations during the moratorium period.