NCLAT Affirms Continuity of Essential Services Under Amended Section 14 of the IBC During Moratorium, Reinforcing Legislative Intent to Protect Corporate Debtor Value
- REEDLAW
- Sep 26, 2024
- 3 min read
The NCLAT affirmed the continuity of essential services under the amended Section 14 of the IBC during the moratorium, reinforcing the legislative intent to protect the value of the corporate debtor.
The National Company Law Appellate Tribunal (NCLAT), Principal Bench led by Justice Ashok Bhushan (Chairperson) and Mr. Barun Mitra and Mr. Arun Baroka (Technical Members) reviewed a bunch of two appeals and observed that under the amended Section 14 of the IBC, essential supplies, including electricity, must continue during the moratorium period unless the corporate debtor fails to pay current dues; thus, disconnection for unpaid dues is impermissible when the moratorium is in effect. This interpretation reinforces the legislative intent to protect the value of the corporate debtor during insolvency proceedings.
In the recent case involving Earthcon Infracon Pvt. Ltd., two appeals were filed by the Appellant (NPCL) under Section 61 of the Insolvency and Bankruptcy Code, 2016, challenging separate orders from the Adjudicating Authority issued on May 3, 2024. The first order granted a permanent stay on the disconnection of electricity during the moratorium period, while the second order disposed of NPCL’s application to vacate an interim order preventing disconnection.
Following the initiation of the Corporate Insolvency Resolution Process (CIRP) for Earthcon, a Resolution Professional was appointed to oversee its operations. NPCL had issued a notice for disconnection due to unpaid post-CIRP electricity dues, leading the Respondent to seek a stay on this action. An interim order was granted, which prohibited NPCL from proceeding with disconnection. Throughout the proceedings, interim directives were issued for the Respondent to collect and pay the dues, yet tensions persisted.
Appellant argued that the current electricity dues accrued during the moratorium were not shielded by Section 14 of the IBC, insisting that these dues should be regularly paid to avoid disconnection. Conversely, the Respondent contended that disconnecting the power supply would jeopardize the corporate debtor's value, advocating for the uninterrupted provision of essential services during the insolvency process. The Adjudicating Authority sided with the Respondent, asserting that the moratorium barred NPCL from disconnecting electricity and rendered the disconnection notice void.
Upon review, the NCLAT found that the Adjudicating Authority had not adequately considered the amendments to Section 14 of the IBC introduced by Act 1 of 2020. The Tribunal determined that the order was inconsistent with the legislative framework, particularly regarding the clarification in Section 14(1) and the provisions of Section 14(2-A), which emphasized the continuity of essential supplies unless dues remained unpaid during the moratorium. The Tribunal also referenced the legal principles established in the Shailesh Verma, Resolution Professional of Lavasa Corporation Limited v. Maharashtra State Electricity Distribution Company Limited, REEDLAW 2022 NCLAT Del 09515 case, reinforcing the necessity for essential services to continue to protect the corporate debtor's value.
Ultimately, the NCLAT ruled the impugned order legally unsustainable and set it aside. It mandated that the Respondent clear the outstanding electricity dues within 90 days, allowing for a phased payment proposal within 30 days. If NPCL rejected the proposed plan, the original timeline for payment would remain intact. The appeals were upheld, concluding without costs. This judgment underscores the delicate balance between insolvency proceedings and the obligation to maintain essential services during such processes.
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