Electricity falls under Essential Service which must not be restrict during CIRP Period: NCLAT
The Appellate Tribunal held that IBC allows the payment of dues for essential services during the CIRP period
CIRP – NCLAT – CIRP Period – Corporate Insolvency Resolution Process – Corporate Insolvency – essential Service during CIRP – taxscan
CIRP – NCLAT – CIRP Period – Corporate Insolvency Resolution Process – Corporate Insolvency – essential Service during CIRP – taxscan
In a recent case, the Delhi bench of the National Company Law Appellate Tribunal ( NCLAT ) held that electricity falls under essential service and must continue during the Corporate Insolvency Resolution Process ( CIRP ) period.
Earthcon Infracon Pvt. Ltd. ( Corporate Debtor ) was developing two residential projects, "Sanskriti" and "CASA." In 2019, the NCLT, New Delhi (Adjudicating Authority) initiated Corporate Insolvency Resolution Proceedings ( CIRP ) against the Corporate Debtor. The Resolution Professional (Respondent no 1) was appointed to manage the operations, which included providing maintenance and electricity to homebuyers (Appellants) who had received their apartments between February 2018 and January 2020.
The homebuyers were paying a maintenance fee of Rs. 1 per square foot plus GST, but there was an outstanding electricity bill owed to Noida Power Corporation Limited (Respondent no 2).
As unpaid electricity charges increased, the Committee of Creditors (CoC) passed a resolution in their 12th meeting on January 21, 2022, to raise the maintenance fee to Rs. 2 per square foot plus GST to cover electricity charges.
With approval from the Committee of Creditors (CoC), the RP raised the electricity rate from ₹7 per unit to ₹8.91 per unit for homebuyers who received possession of their flats in the Sanskriti Project of the Corporate Debtor.
The homebuyers then applied to quash this decision and requested interim measures to prevent the disconnection of electricity for non-payment of increased fees. The Adjudicating Authority directed all residents to pay pending electricity and maintenance charges but instructed the RP not to disconnect electricity. The Authority modified its previous order, allowing the RP to take coercive steps regarding non-payment.
The Appellate Tribunal observed that when the RP took over, there was a shortfall in maintenance charges and outstanding electricity dues. The Tribunal held that under the IBC, the RP was responsible for managing these payments. It noted that the Corporate Debtor was required by Section 11(4)(d) of the RERA Act to provide essential services, including electricity, until the project maintenance was taken over by the association of Homebuyers.
The two member bench comprising Justice Ashok Bhushan (Chairperson), Mr. Barun Mitra (Technical Member), and Mr. Arun Baroka (Technical Member), observed that the Committee of Creditors (CoC) approved raising the electricity rate to ₹8.91 per unit, effective from January 1, 2021, for homebuyers who had taken possession of their flats in the Corporate Debtor's project. The resolution was passed with the required majority, with 87% of the financial creditors' representatives voting in favor.
While upholding the decision of NCLT, the Appellate Tribunal held that IBC allows the payment of dues for essential services during the CIRP period. Also, there is no provision that excuses the Corporate Debtor from paying these amounts until the moratorium period ends.
To Read the full text of the Order CLICK HERE
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