National Company Law Appellate Tribunal, New Delhi: In an appeal challenging the Adjudicating Authority’s order directing the appellant, Maharashtra State Electricity Distribution Company Ltd., to restore Corporate Debtor’s electricity without insisting on payment during CIRP, a 3-member bench of Ashok Bhushan, J., Barun Mitra (Technical Member) and Arun Baroka (Technical Member), upheld the Adjudicating Authority’s order and held that Electricity is an essential service under Section 14(2) of the Insolvency and Bankruptcy Code, 2016 (IBC) and cannot be disconnected even if dues remain unpaid during CIRP.
Factual Matrix
In the instant matter, the Corporate Debtor, Morarjee Textiles Ltd., was granted an electricity connection by the appellant for operating its textile mill. On 05-02-2024, electricity bill, for the month of January 2024, of Rs.4,78,27,140/- was raised by the appellant towards unpaid electricity bills. On 09-02-2024, Corporate Insolvency Resolution Process (CIRP) was initiated against the Corporate Debtor on an application filed by Axis Bank Limited. The appellant filed its claim for outstanding electricity dues for the pre-CIRP period in Form B. The appellant also issued notices under Section 56 of the Electricity Act, 2003, warning of disconnection due to non-payment. On 26-06-2024, the appellant disconnected the electricity connection on account of non-payment of outstanding dues for the month of April and May, 2024. Following assurances of payment, the supply was restored but was again disconnected on 28-08-2024 due to continued non-payment.
The Resolution Professional, relying on Section 14(2) of IBC, contended that the electricity supply should not be disconnected during CIRP. An application was filed by the Resolution Professional praying for various reliefs including directions to restore the electricity supply. Vide order dated 03-09-2024, the Adjudicating Authority passed an interim order directing the appellant to restore the electricity supply of the Corporate Debtor for 15 days. The electricity supply was reconnected, and the Resolution Professional made a partial payment of Rs. 50 lakhs on 05-09-2024. However, the appellant continued to demand clearance of dues.
Vide order dated 15-10-2024, the Adjudicating Authority observed that to ensure the continuance of supply during CIRP, the Corporate Debtor must clear its bills. Ultimately, the Adjudicating Authority, order dated 24-10-2024, ruled in favor of the Resolution Professional, directing the appellant to refrain from disconnecting the electricity supply.
Appellant’s Contentions
The appellant challenged the order dated 24-10-2024 and contended that the electricity dues incurred by the Corporate Debtor during the CIRP period were required to be paid in accordance with Section 14(2A) IBC. The appellant argued that the Adjudicating Authority erred in directing the restoration of electricity supply without ensuring payment of current dues.
The appellant relied on Shailesh Verma v. Maharashtra State Electricity Distribution Co. Ltd., 2022 SCC OnLine NCLAT 4321, where the NCLAT held that electricity charges during CIRP must be paid, failing which disconnection was justified and Noida Power Company Ltd. v. Gaurav Katiyar, 2024 SCC OnLine NCLAT 1133, where the NCLAT emphasised that non-payment of electricity dues during CIRP entitled the electricity provider to disconnect the supply.
The Appellant further submitted that as per Regulation 31 of the CIRP Regulations, insolvency resolution process costs include amounts due for essential services under Regulation 32, but that does not exempt the Corporate Debtor from making timely payments. The Appellant argued that the electricity consumption of the Corporate Debtor was substantial and integral to its manufacturing operations, making it a ‘critical service’ rather than an ‘essential service,’ thereby falling under the purview of Section 14(2A). Consequently, as the Corporate Debtor failed to clear the electricity dues, the disconnection was justified.
Respondents’ Contentions
The respondents contended that electricity supply falls within the ambit of ‘essential services’ under Section 14(2) of the IBC and Regulation 32 of the CIRP Regulations. The respondents distinguished between ‘essential services’ under Section 14(2) and ‘critical services’ under Section 14(2A), asserting that the latter applied only where the Resolution Professional designated services as critical to preserving the Corporate Debtor’s value. The Respondent relied on Sandeep Khaitan v. JSVM Plywood Industries Ltd., (2021) 9 SCC 401, wherein the Supreme Court held that essential services should not be interrupted during the moratorium period.
It was argued that the electricity dues during CIRP constituted CIRP costs, which are payable in priority but are not immediately due. The Respondent asserted that the Adjudicating Authority correctly directed the restoration of electricity supply, as discontinuation would jeopardize the Corporate Debtor’s ability to function as a going concern.
Further, it was submitted that payments were made towards electricity dues, including a partial payment of Rs. 50 lakhs, and the Committee of Creditors (CoC) has resolved to arrange for additional payments through interim financing. The respondents also assured that textile subsidies awaited from the Government would be allocated towards outstanding electricity dues.
NCLAT’s Observation
The NCLAT noted that electricity supply to the Corporate Debtor constituted an ‘essential service’ under Section 14(2) IBC read with Regulation 32 of the CIRP Regulations. The NCLAT asserted that since the Corporate Debtor uses electricity for running machinery but not as a direct input to textile production, it qualifies as an essential supply.
While distinguishing between Sections 14(2) and 14(2A) IBC, the NCLAT noted that Section 14(2) protects essential services from disconnection during CIRP, irrespective of payment status and Section 14(2A) applies to ‘critical supplies,’ allowing termination if dues during CIRP are unpaid. The NCLAT stated that as the Resolution Professional relied on Section 14(2) and not 14(2A), electricity supply could not be disconnected. The NCLAT asserted that electricity, unless proven to be a direct input to production, falls within the statutory protection against termination during the moratorium period.
The NCLAT noted a proposed IBBI amendment to clarify that electricity supply to manufacturing units may be treated as a critical service under Section 14(2A), requiring payment during CIRP. However, the NCLAT stated that as of now, the existing law, Section 14(2) IBC applies, and electricity must continue without immediate payment.
“…the resolution professional, as assured to the appellant, need to take steps to clear the electricity dues, however, non-payment of electricity dues cannot be a ground to discontinue the electricity which is a clear mandate by Section 14(2).”
NCLAT’s Decision
The NCLAT upheld the Adjudicating Authority’s decision and directed the appellant not to disconnect the electricity connection necessary for running the manufacturing facilities. The NCLAT further directed the resolution professional to pay the electricity dues as assured through various letters to the appellant by taking steps including raising interim finance.
[Maharashtra State Electricity Distribution Co. Ltd. v. Ravi Sethia Resolution Professional of Morarjee Textiles Ltd., 2025 SCC OnLine NCLAT 382, Decided on 24-02-2025]
*Judgment by Justice Ashok Bhushan
Advocates who appeared in this case:
Mr. Pulkit Doera, Mr. Anup Jain and Ms. Sneha Singh, Counsel for the Appellant
Mr. J. Rajesh, Mr. Dhrupad Vaghani, Mr. Yashwardhan Agarwal and Mr. Arsalan Ahmed, Counsel for the Respondents