Dakshin Gujarat Vij Company Ltd vs M/S. Abg Shipyard Ltd. & Anr

Dakshin Gujarat VIJ Company Ltd. ...Appellant

Vs.

M/s. ABG Shipyard Ltd. & Anr. ...Respondents

Present: For Appellant: - Mr. Pradeep Misra, Advocate

For Respondents: - Ms. Ranjana Roy, Advocate.

ORDER

08.02.2018 ─ The question arises for consideration in this appeal is

whether the order of 'Moratorium' will cover the current charges payable

by the 'Corporate Debtor' for supply of water, electricity etc. or not.

2. Learned counsel appearing on behalf of the Appellant submitted

that the order of 'Moratorium' will be applicable only in respect of the

amount as is payable by the 'Corporate Debtor' to the appellant towards

supply of electricity as was due for the period prior to passing of order

of 'Moratorium'. According to him, the order of 'Moratorium' will not be

applicable to the current dues towards supply of electricity during the

period of 'Moratorium'.

3. On the other hand, according to learned counsel for the

'Resolution Professional', in view of Regulations 31 & 32 of the

'Insolvency and Bankruptcy Board of India (Insolvency Resolution

Company Appeal (AT) (Insolvency) No. 334 of 2017 2

Process for Corporate Persons) Regulations, 2016', the Appellant is duty

bound to supply the essential goods and services, including the

electricity, water etc.

4. Earlier, when the matter was taken up, this Appellate Tribunal by

order dated 15th January, 2018 without deciding the issue, passed the

following order:

"15.01.2018- An application has been filed by

'Resolution Professional' requesting to extend the

time granted by this Appellate Tribunal on 3rd

January, 2018 to pay the current charges to the

Appellant upto 31st December, 2017. Prayer has

been made to allow further four weeks' time to pay

the amount, in view of the fact only sum of Rs. 7

lakhs is available in the account whereas Rs. 5

lakhs is payable for the month of December.

Learned counsel appearing on behalf of the

Appellant submits that the period of moratorium

will come to an end by the end of January, 2018

and if the amount is not paid, it is open to the

Appellant to disconnect the electricity after the

period of moratorium is over.

Taking into consideration the facts and

circumstances of the case, while we reject the

Company Appeal (AT) (Insolvency) No. 334 of 2017 3

prayer for extension of time of four weeks, we allow

the 'Resolution Professional' to pay the current

electricity charges for the month of December, 2017

by 7th February, 2018, failing which, it will be open

to the Appellant to disconnect the electricity.

I.A. No.32 of 2018 stands disposed of.

Post the matter for admission on 8th

February, 2018 in place of 17th January, 2018."

5. Learned counsel appearing on behalf of the 'Resolution

Professional' submitted that the current electricity charges for the

month of December, 2017 have been paid to the Appellant pursuant to

the order passed by this Appellate Tribunal, but for the present, the

'Corporate Debtor' has no fund to pay any further amount.

6. We have heard learned counsel for the parties and perused the

relevant provisions of the Insolvency and Bankruptcy Code, 2016

(hereinafter referred to as "I&B Code") and Regulations 31 and 32 as

referred to above.

7. Section 14 of the 'I&B Code' deals with 'Moratorium'. Sub-section

(2) of Section 14 relates to supply of essential goods or services to the

'Corporate Debtor', which reads as follows:

"14. Moratorium. ─ (1) Subject to provisions of sub-

sections (2) and (3), on the insolvency commencement

Company Appeal (AT) (Insolvency) No. 334 of 2017 4

date, the Adjudicating Authority shall by order declare

moratorium for prohibiting all of the following,

namely:--

(a) the institution of suits or continuation of

pending suits or proceedings against the

corporate debtor including execution of any

judgment, decree or order in any court of law,

tribunal, arbitration panel or other authority;

(b) transferring, encumbering, alienating or

disposing of by the corporate debtor any of its

assets or any legal right or beneficial interest

therein;

(c) any action to foreclose, recover or enforce

any security interest created by the corporate

debtor in respect of its property including any

action under the Securitisation and

Reconstruction of Financial Assets and

Enforcement of Security Interest Act, 2002;

(d) the recovery of any property by an owner or

lessor where such property is occupied by or in

the possession of the corporate debtor.

Company Appeal (AT) (Insolvency) No. 334 of 2017 5

(2) 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.

(3) The provisions of sub-section (1) shall not apply to

such transactions as may be notified by the Central

Government in consultation with any financial sector

regulator.

(4) The order of moratorium shall have effect from the

date of such order till the completion of the corporate

insolvency resolution process:

Provided that where at any time during the

corporate insolvency resolution process period, if the

Adjudicating Authority approves the resolution plan

under sub-section (1) of section 31 or passes an order

for liquidation of corporate debtor under section 33,

the moratorium shall cease to have effect from the

date of such approval or liquidation order, as the case

may be."

8. From sub-section (2) of Section 14 of the 'I&B Code', it is clear

that supply of essential goods or services to the 'Corporate Debtor', as

may be specified by the 'Insolvency and Bankruptcy Board of India',

Company Appeal (AT) (Insolvency) No. 334 of 2017 6

cannot be terminated or suspended or interrupted during the period of

'Moratorium'.

9. Regulation 31 relates to 'Insolvency Resolution Process Costs'

whereas Regulation 32 relates to 'Essential Supplies'. As per Regulation

31, the amounts due to suppliers of essential goods and services under

Regulation 32 are to be included in the 'Insolvency Resolution Process

Costs', as quoted below:

"31. Insolvency resolution process costs. ─ "Insolvency resolution process costs" under section 5(13) (e) shall mean─

(a) amounts due to suppliers of essential goods and services under Regulation 32;

(b) amounts due to a person whose rights are prejudicially affected on account of the moratorium imposed under section 14(1)(d);

(c) expenses incurred on or by the interim resolution professional to the extent ratified under regulation 33;

(d) expenses incurred on or by the resolution professional fixed under regulation 34;

and (e) other costs directly relating to the

corporate insolvency resolution process and approved by the committee."

Company Appeal (AT) (Insolvency) No. 334 of 2017 7

10. Essential goods and services referred to in sub-section (2) of

Section 14, includes electricity, water supplies etc., as referred to in

Regulation 32 and quoted below:

"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 for supplied by the corporate debtor."

11. From the aforesaid provisions, it is clear that the amount as is

due towards supply of essential goods and services, including electricity,

water, telecommunication services and information technology services,

if they are not a direct input to the output produced or supplied by the

'Corporate Debtor', require to be included towards 'Insolvency

Resolution Process Costs' as per sub-section 13(e) of Section 5.

12. From sub-section (2) of Section 14 of the 'I&B Code', it is also clear

that essential goods or services, including electricity, water,

telecommunication services and information technology services, if they

are not a direct input to the output produced or supplied by the

Company Appeal (AT) (Insolvency) No. 334 of 2017 8

'Corporate Debtor', cannot be terminated or suspended or interrupted

during the 'Moratorium' period.

13. However, from the provisions of 'I&B Code' and Regulations, we

find that no prohibition has been made or bar imposed towards payment

of current charges of essential services. Such payment is not covered by

the order of 'Moratorium'. Regulation 31 cannot override the substantive

provisions of Section 14; therefore, if any cost is incurred towards

supply of the essential services during the period of 'Moratorium', it may

be accounted towards 'Insolvency Resolution Process Costs', but law

does not stipulate that the suppliers of essential goods including, the

electricity or water to be supplied free of cost, till completion of the

period of 'Moratorium'. Payment if made towards essential goods to

ensure that the Company remains on-going as made in the present case

for the month of December, 2017, such amount can be accounted

towards 'Insolvency Resolution Process Costs', but it does not mean that

supply of essential goods such as electricity to be supplied free of cost

and the 'Corporate Debtor' is not liable to pay the amount till the

completion of the period of 'Moratorium'. If the 'Corporate Debtor' has

no fund even to pay for supply of essential goods and services, in such

case, the 'Resolution Professional' cannot keep the Company on-going

just to put additional cost towards supply of electricity, water etc. In

case the 'Corporate Debtor' (Company) is non-functional due to paucity

of fund, and has become sick the question of keeping it on going does

not arise.

Company Appeal (AT) (Insolvency) No. 334 of 2017 9

14. In absence of specific prohibition for payment of current charges

and in view of the fact that the 'Corporate Debtor' has already paid the

current electricity charges for the month of December, 2017, we pass

the following orders: -

(i) The 'Resolution Professional' will pay the outstanding

current charges for supply of electricity for the month of

September, 2017 and January, 2017 to the Appellant by 28th

February, 2018. The current electricity charges for the month of

October, 2017 and February, 2017 be paid by 16th March, 2018.

The current charges towards the electricity for the month of

November, 2017 and March, 2018 be paid by 15th April, 2018.

(ii) The Appellant will not levy any late payment surcharges for

delayed payment of current charges, nor disconnect the supply of

electricity in view of sub-section (2) of Section 14 of the 'I&B Code'.

15. The appeal stands disposed of with the aforesaid observations and

directions. However, in the facts and circumstances of the case, there

shall be no order as to cost.

(Justice S.J. Mukhopadhaya) Chairperson

(Justice Bansi Lal Bhat) Member(Judicial) Ar/uk

Company Appeal (AT) (Insolvency) No. 334 of 2017