The Chennai bench of the National Company Law Appellate Tribunal ( NCLAT ) has held that pre-CIRP dues cannot be recovered once the corporate debtor is admitted into insolvency due to moratorium under section 14 of the code.
The Central Transmission Utility of India Limited challenged an order passed by NCLT Hyderabad. KSK Mahanadi Power Company Limited ( ‘Corporate Debtor or CD’ ) is a company engaged in the business of power generation. The Corporate Debtor was admitted into the Corporate Insolvency Resolution Process ( ‘CIRP’ ) on 03.10.2019.
The Corporate Debtor, along with other generators in the state of Chhattisgarh and Chhattisgarh Power Trading Company Limited had entered into a Bulk Power Transmission Agreement dated 24.02.2010 with Power Grid Corporation of India Limited ( PGCIL ) During the CIRP of Corporate Debtor, PGCIL issued notice for cessation on 31.12.2019 terminating the TSA on account of default.
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The PGCIL issued a notice of Power Regulation for a quantum of 500 MW. The Central Electricity Regulatory Commission ( CERC ) vide its record of proceedings dated 21.01.2010 in Petition No. 113/MP/2020 directed PGCIL not to regulate the power supply as long as Corporate Debtor makes the payment of Rs. 100 crores and maintains outstanding dues of more than 45 days to PGCIL at less than Rs. 122 crores.
The Corporate Debtor had made a security deposit for an amount of Rs. 108.44 crores with PGCIL in accordance with its obligations. On 28.03.2020, PGCIL sent an email to the Corporate Debtor stating that it has unilaterally encashed the payment security mechanism maintained by the Corporate Debtor for an amount of Rs. 108.44 crores and adjusted the amount towards transmission charges outstanding.
The appellant submitted that there is no dispute to the effect that the Corporate Debtor is liable to pay transmission charges to the Appellant. It was further submitted that in terms of the regulatory regime under the Electricity Act, 2003 and CERC Regulations, the amount of Rs. 108.44 crores is first to be adjusted against old dues. Thus, the adjustment of security deposit cannot be limited to the post-CIRP dues and the impugned order is contrary to the regulatory regime under the Electricity Act.
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Per contra, the respondents submitted that once CIRP is initiated against the Corporate Debtor, a moratorium under Section 14 of the Code comes into effect, which restricts recovery of money from the Corporate Debtor.
The tribunal referred to section 14 of the code and noted that per Section 14(1)(c), there is prohibition for any action to foreclose, recover or enforce any security interest created by the Corporate Debtor. As per subsection (2) envisages that the Corporate Debtor will continue to run as a going concern and that supply of essential goods or services to the Corporate Debtor shall not be terminated or suspended or interrupted during the CIRP.
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The bench of Justice Rakesh Kumar Jain ( Judicial Member ) and Mr. Ajai Das Mehrotra ( Technical Member ) observed that the moment the dues to the Government are crystalized and what remains is only payment, the claim of the Government will have to be adjudicated and paid only in a manner prescribed in the resolution plan as approved by the Adjudicating Authority, namely the NCLT.
While dismissing the appeal, it was evident that the appellant could not have adjusted the security deposit given by the corporate debtor towards its pre-CIRP dues after the admission of the corporate debtor into the insolvency. Such an action is strictly prohibited by section 14 of the code.
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