Madras High Court
M/S.Empee Distilleries Limited vs The Superintending Engineer on 10 November, 2022
Author: G.R.Swaminathan
Bench: G.R.Swaminathan
1
BEFORE THE MADURAI BENCH OF MADRAS HIGH COURT
Reserved on : 27.07.2022
Pronounced on : 10.11.2022
CORAM
THE HON'BLE MR.JUSTICE G.R.SWAMINATHAN
WP(MD)No.14198 of 2022
and
WMP(MD)Nos.10148 & 10150 of 2022
M/s.Empee Distilleries Limited,
Rep.by its Chief Executive Officer
P.K.Das, having office at 72, Greams Road,
Thousand Lights,
Chennai – 600 006. ... Petitioner
vs.
1.The Superintending Engineer,
Pudukottai Electricity Distribution
Circle, Pudukottai.
2.The Executive Engineer,
O&M/Aranthangi.
3.The Assistant Executive Engineer,
O&M/Town/Aranthangi.
4.The Assistant Executive Engineer,
CO/Pudukottai. ... Respondents
Prayer: Writ Petition filed under Article 226 of the Constitution of India to
issue a Writ of Certiorari calling for the records of the impugned demand
notice dated 08.04.2022 of the 1st respondent and the consequential
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2
order dated 30.05.2022 Lr.No. SE / PEDC / PDKT / DFC / AO / REV /
F.HTSC. No. 125/D.No.353/2022 of the 1st respondent and quash the
same.
For Petitioner : Mr.AR.Karthik Lakshmanan
for Mrs.A.L.Gandhimathi
For Respondents : Mr.S.Dheenadhayalan, standing counsel
assisted by Mr.M.Viji
Mr.Sricharan Rangarajan, Amicus Curiae
ORDER
The petitioner company was engaged in the business of manufacturing liquor. It doddered and fell. Thanks to the helping hand extended by the resolution process under Insolvency and Bankruptcy Code, 2016, it got up. Petition was filed against the petitioner company under Section 7 of the Code in November 2018. On 22.07.2019, SNJ Distilleries Private Limited came out as the successful bidder and its resolution plan was approved by NCLT, Chennai on 20.01.2020. It took over the management of the company as a going concern. The petitioner received the impugned communications issued by the Superintending Engineer, Pudukkottai Electricity Distribution Circle, Pudukkottai, TANGEDCO demanding payment of a sum of Rs.1,23,69,195/-. Contending that the demand is without jurisdiction, this writ petition has been filed.
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2.The sheet anchor of the submission of the learned counsel appearing for the petitioner is that TANGEDCO failed to lodge its claim before the resolution professional within the time stipulated. It failed to enter appearance at any stage of the resolution process. Since the resolution plan had been approved by NCLT, the electricity dues stood extinguished. It is not open to the respondents to mulct the same from the new management. The learned counsel drew my attention to the definitional clauses as well as Section 31 and Section 238 of the Code. He placed considerable reliance on the decisions of the Hon'ble Apex Court reported in (2021) 9 SCC 657 (Ghanashyam Mishra & Sons (P) Ltd v. Edelweiss Asset Reconstruction Co. Ltd) and 2022 LiveLaw (SC) 207 (Ruchi Soya Industries Ltd v. Union of India, WP No.31090 of 2015 dated 26.04.2021). The learned counsel firmly asserted that in view of the statutory scheme set out in the Code, the impugned demand can no longer be raised. He filed notes of submissions and called upon this Court to set aside the impugned communications and allow this writ petition as prayed for.
3.TANGEDCO filed its counter affidavit. The learned standing counsel took me through its contents. His pointed contention is that the electricity dues could not have been ignored when considering the resolution plan. Relying on the various provisions set out in the https://www.mhc.tn.gov.in/judis 3/13 4 Electricity Act, 2003 and the regulations framed thereunder, he submitted that TANGEDCO can refuse to supply electricity to a defaulter. He called upon this Court to dismiss this writ petition.
4.Since certain complicated questions of law had arisen for consideration, I appointed Shri.Sricharan Rangarajan, learned counsel as amicus curiae to assist the court. He also filed written submissions. The learned amicus curiae submitted that the subject claim had not crystallized when the resolution plan was approved and therefore the case-laws relied on by the petitioner's counsel are distinguishable. He would submit that the petitioner company is having its place of business and operations at Aranthangi and therefore, paper publication must have been made in a newspaper having wide circulation in Pudukkottai District. Since publication made in this case was not in accordance with Section 13 of the Code, the resolution plan may not be binding on TANGEDCO. Relying on a few decisions of the Madras High Court, he submitted that the statutory dues cannot be ignored totally while formulating the resolution plan.
5.I carefully considered the rival contentions and went through the materials on record. Order was reserved on 27.07.2022 and it is being pronounced only today. In the intervening period, the Hon'ble Supreme https://www.mhc.tn.gov.in/judis 4/13 5 Court of India in the decision reported in 2022 SCC OnLine SC 1162 (State Tax Officer (1) v. Rainbow Papers Limited had laid down that if the resolution plan ignores the statutory demands payable to any State Government or a legal authority, the adjudicating authority is bound to reject the resolution plan. A resolution plan which does not meet the requirements of sub-section (2) of Section 30 of the IBC would be invalid and not binding on the State when there are outstanding statutory dues of the corporate debtor. Paragraphs relevant to the case on hand read as under :
“45.As rightly argued by the learned Solicitor General, there can be no question of acceptance of a Resolution Plan that is not in conformity with the statutory provisions of Section 31(2) of the IBC. Section 30(2)(b) of the IBC, casts an obligation on the Resolution Professional to examine each resolution plan received by him and to confirm that such resolution plan provides for the payment of dues of operational creditors, as specified by the Board, which shall not be less than the amount to be paid to such creditors, in the event of liquidation of the Corporate Debtor under Section 53, or the amount that would have been paid to such operational creditors, if the amount to be distributed under the resolution plan had been distributed in accordance with the order of priority in Sub-section 2 of Section 53, whichever was higher, and provided for the payment of debts of financial creditors, who did not vote in https://www.mhc.tn.gov.in/judis 5/13 6 favour of the resolution plan, in such manner as might be specified by the Board.
46.Under Section 31 of the IBC, a resolution plan as approved by the Committee of Creditors under Sub-Section (4) of Section 30 might be approved by the Adjudicating Authority only if the Adjudicating Authority is satisfied that the resolution plan as approved by the Committee of Creditors meets the requirements as referred to in Sub-
Section (2) of Section 30 of the IBC. The condition precedent for approval of a resolution plan is that the resolution plan should meet the requirements of Sub- Section (2) of Section 30 of the IBC.
47. In Ebix Singapore Private Limited v. Committee of Creditors of Educomp Solutions Limited5, this Court affirmed that Resolution Plans would have to conform to the statutory provisions of the IBC, and held:— “147. In terms of Regulation 39(4), the RP shall endeavour to submit the resolution plan approved by the CoC before the adjudicating authority for its approval under Section 31 IBC, at least fifteen days before the maximum period for completion of CIRP. Section 31(1) provides that the adjudicating authority shall approve the resolution plan if it is satisfied that it complies with the requirements set out under Section 30(2) IBC. Essentially, the adjudicating authority functions as a check on the role of the RP to ensure compliance with Section 30(2) IBC and satisfies https://www.mhc.tn.gov.in/judis 6/13 7 itself that the plan approved by the CoC can be effectively implemented as provided under the proviso to Section 31(1) IBC. Once the resolution plan is approved by the adjudicating authority, it becomes binding on the corporate debtor and its employees, members, creditors, guarantors and other stakeholders involved in the resolution plan…”.
48. A resolution plan which does not meet the requirements of Sub-Section (2) of Section 30 of the IBC, would be invalid and not binding on the Central Government, any State Government, any statutory or other authority, any financial creditor, or other creditor to whom a debt in respect of dues arising under any law for the time being in force is owed. Such a resolution plan would not bind the State when there are outstanding statutory dues of a Corporate Debtor.
49. Section 31(1) of the IBC which empowers the Adjudicating Authority to approve a Resolution Plan uses the expression “it shall by order approve the resolution plan which shall be binding…” subject to the condition that the Resolution Plan meets the requirements of subsection (2) of Section 30. If a Resolution Plan meets the requirements, the Adjudicating Authority is mandatorily required to approve the Resolution Plan. On the other hand, Sub- section (2) of Section 31, which enables the Adjudicating Authority to reject a Resolution Plan which does not conform to the requirements referred to in sub-section (1) of Section 31, uses the expression “may”.
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50. Ordinarily, the use of the word “shall” connotes a mandate/binding direction, while use of the expression “may” connotes discretion. If statute says, a person may do a thing, he may also not do that thing. Even if Section 31(2) is construed to confer discretionary power on the Adjudicating Authority to reject a Resolution Plan, it has to be kept in mind that discretionary power cannot be exercised arbitrarily, whimsically or without proper application of mind to the facts and circumstances which require discretion to be exercised one way or the other.
51. If the established facts and circumstances require discretion to be exercised in a particular way, discretion has to be exercised in that way. If a Resolution Plan is ex facie not in conformity with law and/or the provisions of IBC and/or the Rules and Regulations framed thereunder, the Resolution would have to be rejected. It is also a well settled principle of interpretation that the expression “may”, if circumstances so demand can be construed as “Shall”.
52. If the Resolution Plan ignores the statutory demands payable to any State Government or a legal authority, altogether, the Adjudicating Authority is bound to reject the Resolution Plan.” I am conscious that in the aforesaid decision, the State had challenged the order of the adjudicating authority rejecting the claim of first charge. The Hon'ble Supreme Court set aside the resolution plan approved by https://www.mhc.tn.gov.in/judis 8/13 9 the Committee of Creditors. In the case on hand, there is no challenge to the order passed by NCLT approving the resolution plan. Be that as it may, applying the test of invalidity laid down in Rainbow Papers Limited, it is beyond dispute that the resolution plan ignores the electricity dues payable to TANGEDCO, a statutory corporation, owned by the Government of Tamil Nadu.
6.The learned counsel for the petitioner would vehemently contend that in Ghanashyam Mishra it had been categorically laid down that the claims which do not form part of the resolution plan stand extinguished. Since TANGEDCO failed to lodge its claim, it cannot now make the impugned demand in view of the extinguishment of the dues in question. Rainbow Papers is a subsequent decision and refers to Ghanashyam Mishra. The resolution plan as approved by NCLT may not be binding on TANGEDCO in view of its apparent invalidity. But TANGEDCO may not be able to initiate proceedings for enforcing its claims so long as the order of the NCLT has not been formally set aside. It is in this view of the matter, I decline to issue a Writ of Certiorari as sought for by the petitioner.
7.But that is not the end of the matter. While TANGEDCO may not be able to enforce its claims, it can still decline to grant fresh https://www.mhc.tn.gov.in/judis 9/13 10 electricity service connection for the premises in question or restore the earlier connection. It is true that Section 43 of the Electricity Act, 2003 casts duty on every distribution licensee to give supply of electricity on request. But this provision has to be read along with Sections 44 to 50. Regulation 17(9) of the Tamil Nadu Electricity Supply Code, 2004 reads as follows :
“In case of service connections in a premises, which have been disconnected / dismantled for defaults in payment of dues whatsoever and if such service connections are to be reconnected or new service connections are to be obtained by other persons in such premises either by purchase or transfer or lease basis, the Distribution Licensee shall reconnect such service connections or effect new service connections, as the case may be, in such premises only after payment of dues attributed to such premises by the applicant:
Provided that in case such premises have legally been sub-divided, the outstanding dues attributed to such premises shall be divided in proportion to the area covered by that sub-division. A new service connection to any of such sub-divided premises shall be given only after the share of outstanding dues attributed to such sub- divided premises, is duly paid by the applicant. The Distribution Licensee shall not refuse connection to an applicant of such sub-divided premises only on the ground that, dues attributed to the other portion(s) of such sub- divided premises have not been paid, nor shall the https://www.mhc.tn.gov.in/judis 10/13 11 licensee demand record of last paid bills of such other portion(s) from such applicants.
(b) The authorised officer of the licensee may permit such applicant to pay the outstanding dues in instalments and to avail the service on payment of 40% of the total arrears outstanding including BPSC in addition to the charges for reconnection of such service connections or effecting new service connections. The balance 60% of the outstanding dues shall be collected in 10 monthly instalments.
(c) In case an intending buyer of a premises requests for the details of electricity charges due from the owner / occupier of the premises to the distribution licensee, the distribution licensee shall provide such details on payment of the charges as stipulated in the order of the Commission on non-tariff related miscellaneous charges for the time being in force.” The aforesaid amendment to the Supply Code was inserted with effect from 13.04.2011. As per Section 3(6) of the IBC, “claim” means right to payment or right to remedy for breach of contract. Even if the submissions of the learned counsel appearing for the petitioner anchored on Ghanashyam Mishra and Ruchi Soya are accepted, the result can only be that TANGEDCO cannot go after the petitioner to enforce its claim. But when the petitioner comes to TANGEDCO and seeks grant of fresh connection or restoration of supply, TANGEDCO https://www.mhc.tn.gov.in/judis 11/13 12 can say sorry. This will not amount to enforcing its claim. It is also not a remedy for breach of contract. TANGEDCO would merely be acting in consonance with the statutory provisions governing it. Such a reading of the statutory scheme of the Electricity Act and the regulations framed thereunder in no way devalues the overriding effect of the Code. Once bitten, twice shy. Court cannot compel a creditor who has already had a massive hair-cut to continue to show his head to the defaulter.
8.The writ petition is dismissed. No costs. Connected miscellaneous petitions are closed.
10.11.2022 Index : Yes / No Internet : Yes/ No skm https://www.mhc.tn.gov.in/judis 12/13 13 G.R.SWAMINATHAN, J.
skm WP(MD)No.14198 of 2022 and WMP(MD)Nos.10148 & 10150 of 2022 10.11.2022 https://www.mhc.tn.gov.in/judis 13/13