Electricity Dues in Liquidation: No Recovery from Auction Purchaser Beyond IBC Waterfall Mechanism
- REEDLAW
- 4 days ago
- 3 min read
NCLAT held that electricity dues in liquidation cannot be recovered from the auction purchaser, as such claims must be settled strictly in accordance with the IBC waterfall mechanism and not beyond it.
The National Company Law Appellate Tribunal (NCLAT), Principal Bench, comprising Justice Ashok Bhushan (Chairperson) and Mr. Barun Mitra (Technical Member), reviewed an appeal and held that once an operational creditor, such as an electricity distribution company, has filed and had its claim admitted in the liquidation process under the Insolvency and Bankruptcy Code (IBC), it cannot demand payment of pre-CIRP dues from the successful auction purchaser as a condition for restoring electricity. Such dues must be settled strictly in accordance with the waterfall mechanism under Section 53 of the IBC.
The Appellate Tribunal considered the appeal filed by UK Power Corporation Limited, which had challenged the order dated 06.01.2023 passed by the Adjudicating Authority (NCLT, New Delhi, Principal Bench) in I.A. No. 4516/2022. This application had been filed by Respondent No. 1, the Successful Auction Purchaser of the Corporate Debtor’s assets in liquidation, seeking a direction to restore the electricity connection. The NCLT had allowed the said application, directing the Appellant to energise the electricity connection, leading to the present appeal.
The facts of the case revealed that following the initiation of CIRP against the Corporate Debtor, M/s. Shree Shyam Pulp and Board Mills, and the failure of any Resolution Plan being approved, liquidation was ordered. The Appellant filed its claim for electricity dues amounting to ₹8.43 crores, out of which ₹7.66 crores was admitted by the Liquidator. The assets of the Corporate Debtor, including land and building, were sold in the seventh e-auction held on 30.07.2021 to Respondent No. 1. The sale was conducted on an "as is where is, as is what is, whatever there is" basis. Subsequently, Respondent No. 1 sought restoration of electricity, which the Appellant resisted on the ground that past dues remained unpaid and were thus recoverable from the new owner under applicable electricity regulations.
The Tribunal examined the rival submissions and noted that the Appellant had already filed its claim in the liquidation proceedings and had been treated as a stakeholder under Section 53 of the IBC. It was further found that the Appellant’s dues, although admitted, had not been paid due to the waterfall mechanism under Section 53, where higher-priority creditors received distributions. The Tribunal held that once a claim has been adjudicated in liquidation, the Appellant could not insist on clearance of past dues by the Successful Auction Purchaser as a precondition for restoring the electricity supply.
The Tribunal further referred to authoritative decisions, including the Supreme Court’s rulings in Paschimanchal Vidyut Vitran Nigam Limited v. Raman Ispat Private Limited and Others, REEDLAW 2023 SC 07609 and Tata Power Western Odisha Distribution and Another v. Jagannath Sponge Private Limited, REEDLAW 2023 NCLAT Del 08541, where it was held that past dues of the Corporate Debtor must be dealt with strictly under the IBC’s framework and that the principle of a “clean slate” must be respected in favour of successful resolution applicants or auction purchasers. It also distinguished cases cited by the Appellant, particularly those arising under the SARFAESI Act, on the ground that liquidation under IBC involves a different statutory scheme, with claims being settled through a codified waterfall.
In conclusion, the Tribunal upheld the NCLT’s decision, observing that no error had been committed in directing the Appellant to restore the electricity connection without insisting upon payment of past dues by the Successful Auction Purchaser. The appeal lacked merit and was accordingly dismissed.
Ms. Sonam Anand, Mr. Yakesh Anand and Ms. Deepshikha Sansanwal, Advocates, represented the Appellant.
Mr. Krishna Dev Vyas, Ms. Shweta Kapoor and Ms. Aakriti Kapila, Advocates, appeared for Respondent No. 1.
Mr. Deepanshu Badiwal, Advocate, appeared for the Respondent No. 2.
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