Allahabad High Court dismisses petition observing the challenge to the demand notice for dues of electricity


The Allahabad High Court has dismissed the petition observing that the challenge to the demand notice for dues of electricity, issued jointly in the name of the Directors of the Corporate debtor, the defaulter company which went into insolvency cannot be sustained on the ground that in view of the acceptance of the resolution plan under Section 31 of the Code, all liabilities of the Directors, who may be the guarantor, stood automatically discharged/ extinguished.

The Division Bench of Justice Sunita Agarwal and Justice Vipin Chandra Dixit passed this order while hearing a petition filed by Narendra Singh Panwar.

The writ petition is directed against the notice of demand dated 30.06.2022 under Section 3 read with Section 5 of the U.P Government Electrical Undertakings (Dues Recovery) Act, 1958, for recovery of electricity dues of the Company namely M/s Trimurti Concast Pvt ltd, a Company incorporated under the Companies Act, 1956.

The petitioner herein is one of the two Directors of the aforesaid Company.

The facts relevant to decide the controversy at hand are that on an application/petition filed by the M/s Ram Alloys Casting Pvt ltd under Section 7 of the Insolvency and Bankruptcy Code, 2016 (IB Code) and the rules framed thereunder, the defaulter company went into insolvency.

At the time of filing of the petition, insolvency resolution process with respect to the defaulter company had already commenced.

By an order dated 22.3.2022, the National Company Law Tribunal (NCLT) had approved the resolution plan and on the application filed by the respondent no1 Corporation namely Paschimanchal Vidyut Vitran ltd for its claim of electricity dues, it was directed by the Tribunal that since the approval of resolution plan was under consideration, the claim as prayed be considered before the approval of the resolution plan by the adjudicating authority. The claim of the applicant Corporation, thus, was to be considered along with other Operational Creditors for whom the resolution applicant had made specific provisions in the resolution plan.

It is contended in the writ petition that after the order dated 22.3.2022 passed by NCLT Allahabad, the electricity connection of the Consumer Company (defaulter company) namely M/s Trimurti Concast Pvt ltd has been disconnected permanently on 30.08.2022, in continuation with the temporary disconnection made on 9.7.2019. The recovery is sought to be made by the demand notice dated 30.06.2022 issued in the name of both the Directors of the defaulter company, which is subject matter of challenge herein.

A copy of the demand notice had been forwarded to the District Magistrate, Muzzaffarnagar on 02.08.2022 in FORM-2 by the Executive Engineer, Paschimanchal Vidyut Vitran Nigam ltd (PVVNL), for making recovery of dues as arrears of land revenue.

It was argued by the counsel for the petitioner that the defaulter Company is a Corporate debtor within the meaning of IB Code, 2016 since the date of commencement of the insolvency proceedings, which is 24.12.2019. With the approval of the resolution plan and the recognition of the respondent no1 Corporation (PVVNL) as Operational creditor, the dues of the respondent Corporation were to be settled by making specific provision in the resolution plan, at the time of issuance of the demand notice under challenge.

It was urged that once the Company went into insolvency, the outstanding electricity dues towards the defaulter company being Corporate debtor could not have been recovered from its Directors. No steps can be taken for recovery of any kind of dues of the Company (Corporate debtor) by adopting any other mode under any other provision, and its Directors who are otherwise not personally liable, cannot be subjected to recovery.

The contention is that the Insolvency Resolution plan approved by the NCLT is binding on the Corporate debtor as also all other Stakeholders. The moratorium period under Section 14 of the IB Code' 2016 began on 24.12.2019. With the order passed by the NCLT recognizing the respondent Corporation as Operational creditor for settlement of its claim in the proceedings under the IB Code 2016, all claims against the Corporate debtor stood extinguished.

It was further submitted that after filing of the writ petition, the liquidation process has been initiated under Section 33 of the IB Code' 2016 and the distribution of assets of the defaulter company/Corporate debtor has been made in accordance with Section 53 of the IB Code, 2016 with the approval of the resolution plan as per the payment schedule provided therein. With the passing of the order dated 22.3.2022 by the NCLT, all the liabilities of the stakeholders mentioned in the resolution plan stood permanently extinguished. The waiver and reliefs, exemptions granted by the NCLT in the order dated 22.03.2022 have been placed before us to assert that after approval of the resolution plan, a creditor is prohibited from initiating proceeding for recovery of its claims which are not part of the resolution plan and all claims except provided in the resolution plan stood permanently extinguished on completion of procedural formalities as provided in the Companies Act, 2013.

The submission is that the Insolvency and Bankruptcy Code, 2016 (IB Code' 2016) is a parliamentary legislation and being a subsequent legislation, by virtue of Section 238 of I.B Code, 2016 it has an overriding effect for any inconsistent provision in any other law for the time being in force.

The procedure of recovery of the electricity dues under the Electricity Act, 2003 read with the U.P Electricity Supply Code, 2005 (framed under Section 30 of the Electricity Act, 2003) for issuance of recovery/demand under the U.P Government Electrical Undertakings (Dues Recovery) Act, 1958 would not be applicable.

No recovery, as such, can be made from the petitioner who is one of the Directors of the defaulter company, who was recognized as Corporate debtor under IB Code, 2016. With the distribution of the assets of the Company in accordance with the Section 53 of the Code' 2016, the assets of the defaulter company/Corporate debtor stood dissolved under Section 54 of the IB Code 2016. Once the affairs of the Corporate debtor have been wound up and its assets completely liquidated, the petitioner herein no longer remains the Director of the company, no recovery at all can be made from the exDirectors of the Company which itself is not in existence. The demand notice/recovery against the Directors, therefore, liable to be quashed.

Pranjal Mehrotra counsel for the Corporation namely respondent nos1 and 3, on the other hand, submitted that Clause 4.3(f) and Clause 6.15 of the Electricity Supply Code, 2005 clearly empower the electricity department to issue recovery proceeding against the Directors of the Company and any payment due to the licensee Company can be recovered as arrears of land revenue as per the provisions of the U.P Government Electrical Undertakings (Dues and Recovery) Act 1958, in accordance with the Clause 6.15 of the Electricity Supply Code, 2005.

The Court observed that,

In view of the above discussions, it is clear that approval of a resolution plan does not ipso facto absolve the surety/guarantor of his or her liability, which arises out of an independent contract of guarantee. To what extent, the liability of a guarantor can be pressed into service would depend on the terms of the guarantee/contract, itself.

For the above position of law, the main contention of the counsel for the petitioner to challenge the recovery on the ground that approval of the resolution plan in the insolvency proceeding in relation to the defaulter company namely M/s Trimurti Concast Pvt ltd (Corporate debtor) would ipso facto discharge both the Directors of the defaulter Company, one of whom is the petitioner before us, is liable to be turned down.

The Court noted that the another Director of the defaulter company namely Ashok Sharma, who is not before us, claim to have given personal guarantee for discharge of the electricity dues of the defaulter company by filing his affidavit along with the application form submitted by the defaulter consumer company (Corporate debtor) for the supply of electricity. To what extent, the contents of the said affidavit would operate as personal guarantee against the said director, is a question which is not to be answered by us as the same has neither been pressed before us nor is required to be answered, in as much as, the challenge to the demand notice by one of the Directors is only on the ground that once the defaulter company went into insolvency, with the approval of a resolution plan under Section 31 of the IB Code, 2016, with the discharge of the Corporate debtor of its liability and subsequent liquidation of the assets of the company, the liability of its Directors stood extinguished, which has been turned down by us for the reasoning given above. Moreover, the signatory director, who claims to have given personal guarantee for the electricity dues is not before us. The aforesaid issue, therefore, is open to be agitated by the parties at an appropriate proceeding.

As to the issue of applicability of Clause 4.3(f)(v) of the Electricity Supply Code, 2005, the arguments with regard to validity of the same or the said provision being ultra vires to the Electricity Act, 2003, made in rejoinder half-heartedly, cannot be entertained, in as much as, no foundation has been laid in that regard in the writ petition.

"For the above discussion, it is clarified that the legal issue with regard to the liability of the personal guarantor of the Corporate debtor whose liability is co-extensive with the principal debtor, i.e the Corporate debtor has been answered by us taking into consideration the law laid down by the Apex Court. However, for the rest of the issues, if any, arise with regard to the nature or extent of liability of the petitioner herein or another director of the Company as personal guarantor, the same have not been answered by us as no arguments have been placed in that regard.

In view of the above discussion, the challenge to the demand notice for dues of electricity, issued jointly in the name of the Directors of the Corporate debtor, the defaulter company which went into insolvency cannot be sustained on the ground that in view of the acceptance of the resolution plan under Section 31 of the Code, all liabilities of the Directors, who may be the guarantor, stood automatically discharged/extinguished. No other point has been pressed before us", the Court further observed while dismissing the petition.