Home > Recent Judgements > Court Rules Against Liability of Purchaser for Past Electricity Dues in Liquidation Cases
August 02, 2024
BACKGROUND
The present case of Yarn Sales Corporation v. Punjab State Power Corporation Ltd. and Anr. discusses the liability of the purchaser of the asset at the time of liquidation to pay past dues of the electricity of the Corporate Debtor, for the purpose of obtaining a new electricity connection on payment of statutory dues except for the past dues.
FACTS
The Corporate Debtor was admitted to liquidation on 05.08.2019. Respondent No. 1 submitted its claim of Rs. 34,59,859/-of outstanding electricity dues which was admitted by the liquidator. The Appellant was the highest bidder for the land and purchased it for Rs. 4,30,00,000/- and received the sale certificate on 22.03.2022. The property had an electricity connection with Respondent No. 1, which was disconnected due to non-payment of electricity dues. After the purchase, the Appellant requested a new electricity connection on 02.04.2022. On 20.05.2022, Respondent No. 1 informed the Appellant that they must clear outstanding dues of Rs. 70,17,865/- before a new connection could be provided. The Appellant then filed an interlocutory application before the Adjudicating Authority, seeking a directive to release the new electricity connection in its name and set aside the outstanding dues. It was held by the Adjudicating Authority via order dated 01.12.2023 that liabilities towards outstanding electricity dues cannot be waived because of liquidation.
ISSUE
Whether the Appellant being the purchaser of the asset, in liquidation, liable to pay past dues of the electricity of the Corporate Debtor, for the purpose of obtaining a new electricity connection on payment of statutory dues except for the past dues?
OBSERVATION OF THE COURT
The court observed that the issue of insisting on payment of arrears for granting a new electricity connection has been addressed in previous judgments. In Chinar Steel Segments Centre Pvt. Ltd. vs. Samir Kumar Agarwal, the court referred to the Supreme Court judgment in Tata Power Western Odisha Distribution Limited (TPWODL) & Anr. vs. Jagannath Sponge Private Limited, where it was held that Tata Power cannot insist on payment of arrears for granting an electricity connection. This judgment relied on earlier decisions, such as Paschimanchal Vidyut Vitran Nigam Ltd. vs. Raman Ispat Private Limited & Ors. And Southern Power Distribution Company of Andhra Pradesh Limited vs. Gavi Siddeswara Steels (India) Pvt. Ltd. and Another. The Supreme Court held that the arrears must be addressed according to the resolution plan approved by the Adjudicating Authority, ensuring the ‘clean slate’ principle. The clean slate principle would stand negated if the successful resolution applicant is asked to pay the arrears payable by the Corporate Debtor for the grant of an electricity connection in her/his name.
The court also referenced the case Embassy Property Developments Pvt. Ltd. vs. State of Karnataka and Others, which clarified that dues payable to a public authority fall within the jurisdiction of tribunals under the Insolvency and Bankruptcy Code ( the “IBC”) if they relate to an operational or financial creditor. The court emphasized that once the dues are crystallized, they must be settled according to the resolution plan. The court also noted that past dues cannot be imposed on the new owner of the Corporate Debtor.
In light of the precedents cited, the court rejected the Respondent’s argument that arrears must be cleared before granting a new connection, stating that this position contradicts the established law. The court held that the application under Section 60(5) of the IBC was maintainable and directed the respondent to grant a new electricity connection without insisting on the payment of the Corporate Debtor’s previous arrears. This decision aligns with the statutory scheme of the IBC, ensuring that past dues cannot obstruct the provision of new connections post-resolution or liquidation.
DECISION OF THE COURT
The court determined that the Appellant, being the purchaser of the asset in liquidation, is not liable to pay the past electricity dues of the Corporate Debtor for obtaining a new electricity connection. This conclusion was based on the Supreme Court’s judgment in Tata Power Western Odisha Distribution Limited (TPWODL) & Anr. vs. Jagannath Sponge Private Limited, which stated that arrears of electricity dues must be addressed through the waterfall mechanism in insolvency proceedings and cannot be imposed on the successful resolution applicant. The court relied on the previous judgments of the Supreme to clarify that the dues of a Corporate Debtor should be paid as prescribed in the approved resolution plan.
The court concluded that there was a patent error in the Adjudicating Authority’s approach in dismissing the Appellant’s application. Therefore, the present appeal was allowed, and the impugned order was set aside. The Court directed Respondent to grant a new electricity connection to the Appellant, excluding the past dues of the Corporate Debtor, which were settled through the liquidation proceedings.
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