Asset Reconstruction (India) Ltd vs R.Venkatakrishnan & Anr

Asset Reconstruction Company (India) Ltd. ...Appellant

Vs.

R. Venkatakrishnan & Anr. ...Respondents

Present: For Appellant: - Mr. Dinkar Singh, Mr. Anshul Rawat and Mr. Aashish Jain, Advocates.

For Respondents: - Mr. Pallav Shishodia, Senior Advocate with Mr. Abraham Mathews and Mr. Nisha Rajen Shonker, Advocates. Mr. C.A. Sinha and Ms. Sonali Khanna, Advocates.

Company Appeal (AT) (Insolvency) No. 233 of 2019

(Arising out of Order dated 25th February, 2019 passed by the Adjudicating Authority (National Company Law Tribunal), Division Bench, Chennai, in CP/552 & 553/IB/CB/2017)

IN THE MATTER OF:

R. Venkatakrishnan ...Appellant

Vs.

Kerala State Electricity Board & Anr. ...Respondents

Present: For Appellant: - Mr. C.A. Sinha and Ms. Sonali Khanna, Advocates. 2

For Respondents: - Mr. Dinkar Singh, Mr. Anshul Rawat, Mr. Aashish Jain, Advocates. Mr. Pallav Shishodia, Senior Advocate with Mr. Abraham Mathews and Mr. Nisha Rajan Shonker, Advocates for R- 1.

J U D G M E N T

SUDHANSU JYOTI MUKHOPADHAYA, J.

In both the appeals, as common order dated 25th February, 2019

passed by the Adjudicating Authority (National Company Law Tribunal),

Division Bench, Chennai, is under challenge, they were heard together

and are being disposed of by this common judgment.

2. Two 'Corporate Insolvency Resolution Processes' were initiated one

against 'M/s. Paragon Steels (P) Ltd.' and another against 'M/s. SMM

Steel Re-rolling Mills Private Limited', for which Common 'Resolution

Professional' was appointed and matters were heard together.

3. 'M/s. Paragon Steels (P) Ltd.' has two units namely- (i) LCN

19/3051 (Unit-1); (ii) LCN 19/4028 (Unit-2). On the other hand, 'M/s.

SMM Steel Re-Rolling Mills Private Limited' has one unit namely- LCN

18/3255. 'M/s. Kerala State Electricity Board' was supplying electricity

to all the aforesaid three units, which were disconnected owing to non-

payment of dues during the 'Corporate Insolvency Resolution Process'.

4. In the said common proceeding(s), on 26th October, 2018, the

Adjudicating Authority after hearing the parties and on the concessions

Company Appeal (AT) (Insol.) Nos. 232 & 233 of 2019 3

given by both the parties, directed the 'Resolution Professional' to deposit

an amount of Rs.3.25 Crores, which is equivalent to the dues payable to

'M/s. Kerala State Electricity Board' for the months falling within

'Corporate Insolvency Resolution Process' period in Escrow Account

without prejudice to the rights and contentions of either side, likewise

directed 'M/s. Kerala State Electricity Board' to forthwith restore power.

5. Pursuant to the said order, the 'Resolution Professional' deposited

the amount of Rs.3.25 Crores in the Escrow Account. The 'Resolution

Professional' informed that the entire Rs. 3.25 Crores need not be paid

because the payments made by him (on behalf of the 'Corporate Debtor')

during 'Corporate Insolvency Resolution Process' period towards the dues

payable for the period before admission shall be adjusted towards

payments payable during the period of 'Corporate Insolvency Resolution

Process'. Since 'M/s. Kerala State Electricity Board' being the

'Operational Creditor', the payments inadvertently paid for the earlier

period should be treated as claims required to be paid to 'M/s. Kerala

State Electricity Board'.

6. The 'Resolution Professional' submitted that this issue has already

been given treatment in the 'Resolution Plan' by adjusting arrear

payments made towards preadmission bills against the bills raised

during 'Corporate Insolvency Resolution Process'.

Company Appeal (AT) (Insol.) Nos. 232 & 233 of 2019 4

7. The Adjudicating Authority by impugned order dated 25th

February, 2019 having noticed that the Electricity Board is not claiming

any amount as 'Operational Creditor' observed since the payments

already been made not to be considered as claim payable by the

'Corporate Debtor', therefore, there could not be any restructuring as to

the money already duly paid by the 'Corporate Debtor'.

8. It was also observed by the Adjudicating Authority that since the

money already deposited in the Escrow Account being towards the bills

raised during 'Corporate Insolvency Resolution Process' period, it shall

be released to 'M/s. Kerala State Electricity Board'. Release of money

lying in Escrow Account cannot be linked to the arrears already paid by

the 'Corporate Debtor', adjustments or set-off is applicable only when

mutual obligations subsisting, here no debt is payable by 'M/s. Kerala

State Electricity Board' to the 'Corporate Debtor'. The Adjudicating

Authority further observed that since the Escrow Account has come into

existence by the order passed by this Bench, once any money has come

to Escrow Account towards the bills on the condition power would be

supplied on deposit of bills in the Escrow Account, the 'Resolution

professional' is not at liberty to give treatment in the 'Resolution Plan'

towards the money paid against the preadmission dues. The application

was disposed of.

Company Appeal (AT) (Insol.) Nos. 232 & 233 of 2019 5

9. The Appellants- 'Asset Reconstruction Company (India) Limited'

and Mr. R. Venkatakrishnan- ('Resolution Professional') preferred the

appeals against the said order.

10. Learned counsel appearing on behalf of the Appellant- Asset

Reconstruction Company (India) Limited' submits that the 'Corporate

Debtor' 'M/s Paragon Steels' as on 15th September, 2017 had an

outstanding payment of Rs. 2,60,47,669 (Rupees Two Crores Sixty Lakhs

Forty-Seven Thousand Six Hundred and Sixty-Nine only) owed to 'Kerala

State Electricity Board'. As on 15th September, 2017, it had also

outstanding payment of Rs. 64,78,610 (Rupees Sixty-Four Lakhs

Seventy-Eight Thousand Six Hundred and Ten) to 'Kerala State

Electricity Board'. The 'Corporate Debtor' was constrained to make

payment to 'Kerala State Electricity Board' towards electricity supply

for the period prior to 'Corporate Insolvency Resolution Process' of

Rs.2,60,47,669 (Rupees Two Crores Sixty Lakhs Forty-Seven

Thousand Six Hundred and Sixty-Nine only) and Rs.64,78,610

(Rupees Sixty-Four Lakhs Seventy-Eight Thousand Six Hundred and

Ten) to keep the 'Corporate Debtors' as going concern and to avoid the

electricity disconnection.

11. It was submitted that the 1 st Respondent- Mr. R.

Venkatakrishnan, vide publication on 24 th September, 2017 of public

announcement in Form-A in terms of Section 15 of the 'I&B Code',

called upon all the creditors of the 'Corporate Debtors' to file their

Company Appeal (AT) (Insol.) Nos. 232 & 233 of 2019 6

respective claims on or before 08 th October, 2017. However, despite

due publication as prescribed under the statute, 2nd Respondent,

providing electricity services to the 'Corporate Debtors', and being

'Operational Creditor' of the 'Corporate Debtor' did not come forward to

file its claim as mandated for all the creditors of the 'Corporate Debtor'.

The 2nd Respondent- 'Kerala State Electricity Board' disconnected

electricity to the 'Corporate Debtors' in June, 2018 during the 'Corporate

Insolvency Resolution Process' period and continuation of 'Moratorium'

period and it was the stage that the 'Resolution Professional' filed

application for restoration of the electricity to the 'Corporate Debtor'. The

Adjudicating Authority, vide order dated 16th July, 2018, allowed the

applications and directed 'Kerala State Electricity Board' to restore the

electricity. The Adjudicating Authority also asked the Electricity Board to

file its claim but, in disregard of the said direction, the Electricity Board

did not submit its claim with the 'Resolution Professional'.

12. The 'Committee of Creditors' in its 14th meeting held on 28th June,

2018, approved the 'Resolution Plans' submitted by Mrs. Fathima Abdul

Khadar acting in concert with Mr. AdbulKadhar ("Successful Resolution

Applicant") with 100% voting in favour of the said 'Resolution Plan' in

relation to both the 'Corporate Debtors'.

13. The 'Resolution Plan' categorically provides for the adjustment of

dues paid by the 'Resolution Professional' to the Electricity Board

('Operation Creditor') towards its dues for dues prior to/up-to 15 th

Company Appeal (AT) (Insol.) Nos. 232 & 233 of 2019 7

September, 2017 pertaining to the pre-'Corporate Insolvency

Resolution Process' period. The Adjudicating Authority vide order

dated 24 th July, 2018 approved the plan.

14. According to the 'Resolution Professional', in terms of the

approved 'Resolution Plan', it made payment to 'Kerala State Electricity

Board' which was due from 'M/s. Paragon Steels Private Limited' and

a sum of Rs.1,92,64,470/- was paid on 15 th September, 2019 after

adjusting a sum of Rs. 2,60,47,669/- which was earlier paid on 6th

October, 2018 towards pre 'Corporate Insolvency Resolution Process'

period dues.

Similarly, in terms of the approved 'Resolution Plan', the

amount which was due to the 'Kerala State Electricity Board' from 'M/s.

SMM Steel Re-Rolling Mills Private Limited', a sum of Rs 16,87,883/-

was paid on 15th September, 2019 after adjusting a sum of

Rs.64,78,610/- which was earlier paid on 6th October, 2018 towards

pre 'Corporate Insolvency Resolution Process' period.

15. Thereafter, despite due payment of the outstanding electricity dues

and its due intimation to the 'Resolution Professional' on 8th October,

2018, the Electricity Board failed to restore electric supply which had

been disconnected since July, 2018, which was restored pursuant to

interim order passed by the Adjudicating Authority on 26th October, 2018

subject to deposit of Rs.3.25 Crores in an Escrow Account.

Company Appeal (AT) (Insol.) Nos. 232 & 233 of 2019 8

16. It was submitted that the Electricity Board being a provider of

electricity services to the 'Corporate Debtor', squarely falls under the

definition of 'Operational Debt' as per section 5(2 ) of the 'I&B Code'.

Thus, by virtue of the above definition the 'Resolution Professional'

ought to have submitted its claims in accordance with the provisions

of the 'I&B Code' applicable to the 'Operational Creditors'. By not doing

so, the 'Resolution Professional' has acted arbitrarily by lowering the

pool of funds available for meeting 'Corporate Insolvency Resolution

Process' costs.

17. Similar plea has been taken by Mr. R. Venkatkrishnan,

'Resolution Professional' in his appeal.

18. According to 2nd Respondent- 'Kerala State Electricity Board',

post Commencement of 'Insolvency Resolution Process' since 15 th

September, 2017, the electricity dues were being paid as cost of

insolvency resolution process, albeit erratically. The electricity

supply was disconnected for the dues pertaining to Resolution Period

and was restored in compliance with the order dated 26 th October,

2018 passed by the Adjudicating Authority, whereby the amount

payable was directed to be kept in an escrow account as security.

On scrutiny, the story of inadvertent payment of past dues concocted

after 'Resolution Plan' and/or figures given in application are

imaginary. None of this and other submissions of Appellants are

Company Appeal (AT) (Insol.) Nos. 232 & 233 of 2019 9

borne out by the 'Resolution Plan' itself and/or the actual

dues/payments from time to time.

19. It was further submitted that the supply of electricity is

restored pursuant to order safeguarding the payment of dues in

escrow account, without in any manner disturbing the 'Resolution

Plan', the amount in escrow account is rightly released to the 'Kerala

State Electricity Board'.

20. On 14 th March, 2019, when the matter was taken up, counsel

for the Electricity Board submitted that the electricity connection of

the 'Corporate Debtor' have been restored. They were allowed to file

reply affidavit with liberty to Appellant to file rejoinder. Interim

order was passed directing the Respondent- Electricity Board

including the 'Resolution Professional' not to withdraw any amount

from the Escrow Account in which the amount has been deposited.

21. 'Moratorium' prescribed under Section 14 of the 'I&B Code'. As per

sub-section (2) of Section 14, the supply of essential goods or services to

the 'Corporate Debtor' as may be specified shall not be terminated or

suspended or interrupted during 'Moratorium' period.

22. The essential supplies have been defined under Regulation 32 of

the 'Insolvency and Bankruptcy Board of India (Insolvency Resolution

Process for Corporate Persons) Regulations, 2016', which includes

electricity and read as follows:

Company Appeal (AT) (Insol.) Nos. 232 & 233 of 2019 10

"32. Essential supplies.─ The essential goods and

services referred to in section 14(2) shall mean--

(1) Electricity;

(2) Water;

(3) Telecommunication services; and

(4) Information technology services,

to the extent there are not a direct input to the

output produced or supplied by the corporate

debtor."

23. In that view of the matter, it was not open to the Electricity Board

to disconnect the electricity which is in violation of Section 14(2) of the

'I&B Code'.

24. If any amount due for the period of the 'Corporate Insolvency

Resolution Process' was not paid, in such case, Electricity Board should

have moved before the Adjudicating Authority for payment of current

dues of 'Corporate Insolvency Resolution Process', but it had no

jurisdiction to disconnect the electricity in violation of Section 14(2) of the

'I&B Code'.

25. The Electricity Board provides services by supplying electricity and

thereby comes within the meaning of 'Operational Creditor' as defined

under Section 5(20) read with Section 5(21) of the 'I&B Code'.

Company Appeal (AT) (Insol.) Nos. 232 & 233 of 2019 11

26. Similar matter fell for consideration before this Appellant Tribunal

in "Uttrakhand Power Corporation Ltd. v. M/s. ANG Industries Ltd.─

Company Appeal (AT) (Insol.) No. 298 of 2017" wherein this Appellate

Tribunal taking into consideration the fact that the order of 'Moratorium'

had been passed held that 'Uttarakhand Power Corporation Limited'

cannot recover any amount as was due for the earlier period prior to the

date of initiation of 'Corporate Insolvency Resolution Process', though it

was entitled to submit the claim before the 'Resolution Professional'. This

Appellate Tribunal further observed that the amount payable towards the

current charges during the 'Corporate Insolvency Resolution Process' was

payable to the 'Uttarakhand Power Corporation Limited'.

27. In view of the aforesaid position of law, while we hold that it is not

open to the Electricity Board to disconnect the electric supply of the

'Corporate Debtor' during the 'Corporate Insolvency Resolution Process',

the 'Resolution Professional' should not have paid any dues of the earlier

period for restoration of electricity. The 'Resolution Professional' should

have brought the fact to the notice of the Adjudicating Authority, who

should have ordered for restoration of electricity with clear direction to

pay the dues of the current charges of the 'Corporate Insolvency

Resolution Process'. Such being the position, the amount, if any, wrongly

paid of the earlier period to the Electricity Board, the same should be

adjusted from the current charges. On such adjustment, if it is found

Company Appeal (AT) (Insol.) Nos. 232 & 233 of 2019 12

further amount is liable to be returned by the Electricity Board then the

Electricity Board should be asked to return the amount.

28. The 'Resolution Plan' having been approved by the Adjudicating

Authority on 24th July, 2018 under Section 31, it was not open to the

Adjudicating Authority to pass order subsequently on 25th February,

2019 to release the amount of Rs.3.25 Crores in favour of Electricity

Board.

29. For the reason aforesaid, we set aside the impugned order dated

25th February, 2019 and allow the appeals. No costs.

(Justice S.J. Mukhopadhaya) Chairperson

(Justice A.I.S. Cheema) Member(Judicial)

(Kanthi Narahari) Member(Technical) NEW DELHI 23rd July, 2019 AR

Company Appeal (AT) (Insol.) Nos. 232 & 233 of 2019