NCLT Rules Electricity as "Essential Supply" u/s 14(2) IBC, Bars Disconnection for Non-Payment of Pre-CIRP Dues by Hotel [Read Order]

The National Company Law Tribunal has ruled that electricity is an essential supply under section 14(2) of the Insolvency and Bankruptcy Code,2016, and it has also barred the disconnection of electricity for the non-payment of pre-Corporate Insolvency Resolution Process (CIRP) dues.

The Financial Creditor, Punjab National Bank, had initiated CIRP against Garib Nawaz Hotels, the Corporate Debtor. It was admitted on 9 February 2024, with Jalesh Kumar Grover, the applicant in the instant case, appointed as IRP. In compliance with statutory obligations, the IRP informed various authorities. It included the respondent, the Chandigarh Electricity Department, as well. The IRP requested them not to suspend essential services.

The Chandigarh Electricity Department (CED) filed a claim of ₹62.56 lakh as outstanding dues up to March 2024. After adjustment of a payment of ₹9.9 lakh made by suspended directors, the pending arrears stood at ₹53.53 lakh. The IRP assured that pre-CIRP dues would be addressed under Section 53 of the Code. But the department threatened disconnection unless immediate payment was made.

The IRP emphasised that electricity is an essential service under Regulation 32 of the CIRP Regulations and also that Section 14(2) of IBC mandates uninterrupted supply during the moratorium. He also highlighted that current bills during CIRP were being paid regularly, with payments totalling ₹15.49 lakh between March and June 2024.

The Chandigarh Electricity Department argued that the hotel had been a chronic defaulter, leading to inclusion in the “bad debts” list. As a commercial entity, the department purchases power daily at public expense and cannot sustain massive arrears.

It was also argued that public hearings had raised concerns about the non-recovery of dues from large consumers. Also, while current bills were being cleared, arrears remained unpaid, causing pressure from higher authorities. The department proposed instalment payments of arrears along with current bills, but claimed the IRP failed to honour assurances.

The Bench, comprising Khetrabasi Biswal (Judicial Member) and Shishir Agarwal (Technical Member) , framed two key issues:

The first issue was whether electricity supply is an essential service under IBC during CIRP?

For this issue at hand, the Tribunal held that electricity is explicitly defined as an “essential supply” under Regulation 32. It was also observed that Section 14(2) prohibits termination or suspension of such services during the moratorium. It was further observed that for a hotel business, electricity is foundational to operations, safety, and hospitality standard and disconnection of electricity would frustrate CIRP objectives and jeopardise resolution plans.

The second issue was whether IRP is liable to pay pre-CIRP dues during CIRP?

The Tribunal clarified that arrears of ₹53.53 lakh constitute pre-CIRP operational debt. It was observed that such dues must be dealt with under Section 53 of IBC through the resolution plan or liquidation, not during CIRP. The tribunal opined that the IRP’s duty is limited to paying current dues to keep the debtor as a going concern. The electricity department, like other creditors, must await distribution under the approved plan.

In the result, the matter was disposed of with the following directions:

1) The Respondents are directed to refrain from taking any action to terminate, suspend or interrupt the electricity connection of the Corporate debtor during the subsistence of the Moratorium under the Code. The Applicant is also directed to ensure the timely payment of all current electricity bills (post- CIRP dues) to the concerned electricity department.

2) The Respondents may make suitable claims before IRP/RP, if already not made, in respect of their arrears. And the Applicant is directed to consider those claims as per law along with other claims.

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