Successful Auction Purchaser Cannot Forced to Pay Pre-CIRP Electricity Dues before Restoring Electricity Connection: NCLAT [Read Order]

The New Delhi Bench of the National Company Law Appellate Tribunal ( NCLAT) has held that a successful auction purchaser cannot be forced to pay pre-CIRP electricity dues before restoring an electricity connection.

M/s Uttarakhand Power Corporation Limited (UPCL)T filed the appeal challenging the Order dated 06.01.2023 passed by the Adjudicating Authority (National Company Law Tribunal) filed by the Respondent No. 1. The Application filed by R-1, the

Successful Auction Purchaser of the Assets of the Corporate Debtor in Liquidation has been allowed, aggrieved by which Order, this Appeal has been filed.

The Corporate Insolvency Resolution Process (CIRP) was started by an order dated 27.03.2019 in response to an application that the UCO Bank filed under Section 7 against the corporate debtor, M/s. Shree Shyam Pulp and Board Mills. With the approval of no Resolution Plan in the Corporate Debtor's CIRP, the Adjudicating Authority issued an order on December 16, 2020, directing liquidation.

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The appellant's claim of ₹7,66,95,203/-was shown as an allowed claim in the list of stakeholders published by Liquidator on April 18, 2022. The corporate debtor's land and building were sold to the winning auction purchase (SAP) in the seventh auction sale, and the SAP was also granted a letter of possession. Later, in response to the appellant's opposition, SAP filed an application seeking a directive against the appellant to restore the electricity connection. The Adjudicating Authority granted the application and ordered the restoration of the electrical connection after hearing arguments from both parties. The current appeal has been filed against this order.

"As where is, as is what is, and whatever there is basis" was the appellant's argument regarding the eAuction in which Respondent No. 1 declared the successful auction buyer. The successful auction buyer is responsible for paying any debts and electricity costs when the auction is held under the aforementioned criteria that were specified in the e-Auction notice. The successful auction buyer needed to conduct independent research on the outstanding balances for water, electricity, and local taxes. The successful auction buyer is unable to deny the corporate debtor's obligation to pay the outstanding electricity bills.

The respondent refuted the allegations, arguing that the liquidator acknowledged the appellant's claim in the liquidation case. According to Section 53 of the IBC, the appellant is entitled to treatment of its dues. Since the appellant's debts were settled during the liquidation process in accordance with the IBC, the appellant cannot demand that the R-1 pay pre-CIRP debts before the energy connection is reconnected or energized.

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Noting the Supreme Court's ruling in Tata Power Western Odisha Distribution Limited (TPWODL) & Anr. vs. Jagannath Sponge Private Limited, 2023, the NCLAT in Chinar Steel Segments Centre Pvt. Ltd. vs. Samir Kumar Agarwal, Liquidator of Bhaskar Shrachi Alloys Limited (in Liquidation) and Anr., 2023, held that "the Respondent cannot insist that unless the arrears of the electricity dues which dues were payable by the Corporate Debtor prior to disconnection are paid by the Appellant. The Respondent's stance is against the law established by the Supreme Court and this Tribunal, as previously said.

A division bench of Justice Ashok Bhushan (Judicial Member) and Mr. Barun Mitra (Technical Member) viewed that  in `M/s. Yarn Sales Corporation through Sh. Rajesh Kumar, Partner’ where a similar issue was considered and answered by this Tribunal.  The tribunal held that no error has been committed by the Adjudicating Authority in allowing the I.A. No. 4516/2022 filed by the R-1 and dismissed the appeal.

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