Calcutta High Court (Appellete Side)
And Another vs West Bengal State Electricity on 23 March, 2022
Author: Sabyasachi Bhattacharyya
Bench: Sabyasachi Bhattacharyya
In the High Court at Calcutta
Constitutional Writ Jurisdiction
Appellate Side
The Hon'ble Justice Sabyasachi Bhattacharyya
W.P.A. No. 1936 of 2022
Sri Vasavi Industries Limited
and another
Vs.
West Bengal State Electricity
Distribution Company Limited
For the petitioners : Mr. Joy Saha,
Mr. Moti Sagar Tiwari,
Mr. Swatarup Banerjee,
Mr. Shaunak Mitra,
Mr. Hemant Tiwari,
Ms. Shweta Poddar
For the
Respondent-WBSEDCL : Mr. Abhrajit Mitra,
Mr. Jishnu Chowdhury Mr. Chayan Gupta, Mr. Sandip Dasgupta, Mr. Saaqib Siddiqui, Mr. Aviroop Mitra Hearing concluded on : 09.03.2022 Judgment on : 23.03.2022 Sabyasachi Bhattacharyya, J:-
1. In the present writ petition, the petitioners have prayed primarily for restoration of their electricity connection, which was disconnected by the respondent-distribution licensee on November 29, 2014 because of non-payment of electricity dues by the petitioner. 2
2. The learned Senior Advocate appearing for the petitioners contends that the documents filed by the West Bengal State Electricity Distribution Company Limited (in short, WBSEDCL) have no relevance in the matter.
3. The learned Senior Advocate for the petitioners argues that in respect of the petitioner no.1-Company, a Corporate Insolvency Resolution Process (CIRP) was initiated vide Order dated October 28, 2019 under the Insolvency and Bankruptcy Code, 2016 (for the sake of brevity, 'the IBC'), on an application filed under Section 7 of the IBC by the Stressed Assets Stabilisation Fund. Pursuant to the order of the National Company Law Tribunal (NCLT), Amravati Bench, the Resolution Professional appointed by the Adjudicating Authority called for claims from creditors vide Public Announcement dated October 31, 2019, which was widely circulated. Subsequently, the Resolution Plan was passed by the NCLT, Amravati bench vide order dated November 10, 2021. It is argued that by operation of Section 31(1) of the IBC, the petitioner no.1 has no dues whatsoever upon the approval of the said Resolution Plan.
4. The learned Senior Advocate submits that claims which were not filed before the approval of the Resolution Plan and were not a part of the said Plan, stand extinguished. The learned Senior Advocate places reliance on the provisions of Section 31(1) and Section 238 of the IBC on such score and cites Ghanashyam Mishra and Sons Private Limited Vs. Edelweiss Asset Reconstruction Company Limited, reported at (2021) 9 SCC 657, where the Supreme Court held that claims which 3 were not filed before the approval of the Resolution Plan by the NCLT and which are not a part of the Resolution Plan, stand extinguished.
5. The petitioner also places reliance on the judgment dated February 25, 2021 passed by the National Company Law Appellate Tribunal (NCLAT), Delhi, in M/s. Shiv Sakti Inter Globe Exports Pvt. Ltd. Vs. M/s. KTC Foods Private Limited in Company Appeal (AT) (Insolvency) No.650 of 2020, wherein it was held that subsequent to the sale of the Corporate Debtor Company as a 'going concern', claims of the distribution licensee, that is, the Uttar Haryana Bijli Vitran Nigam could not be foisted upon the appellant therein. The scope and objective of the IBC is to extinguish all claims, specifically the ones which were not even made during the CIRP or in the liquidation stage, to aid the purchaser of the company as a 'going concern' to start on a 'clean slate'.
6. The principle enunciated in Ghanashyam Mishra (supra) was reiterated by the Supreme Court in the judgment dated February 17, 2022 in M/s. Ruchi Soya Industries Ltd. Vs. Union of India & ors., rendered in Civil Appeal Nos. 447 - 448 of 2013.
7. It is argued by the learned Senior Advocate for the petitioner that the New Management/Resolution Applicant cannot be faced with new claims. In support of the said proposition, learned counsel places reliance on Committee of Creditors of Essar Steel India Limited Vs. Satish Kumar Gupta and others, reported at (2020) 8 SCC 531, wherein it was held that a successful Resolution Applicant cannot certainly be faced with "undecided" claims after the Resolution Plan 4 submitted by him has been accepted. The Supreme Court held that acceptance of such undecided claims would amount to a hydra head popping up which would throw into uncertainty amounts payable by a prospective Resolution Applicant, who successfully takes over the business of the Corporate Debtor. All claims must be submitted to and decided by the Resolution Professional so that a prospective Resolution Applicant knows exactly what has to be paid in order that it may then take over and run the business of the Corporate Debtor.
It is next argued on behalf of the petitioners that the Resolution Plan qua petitioner no.1 has been approved and is binding on the respondent. Reliance is placed on the provisions of Section 31(1) of the IBC and Ghanashyam Mishra (supra) on such count.
8. The learned Senior Advocate next submits that the respondent is a Statutory Body and is required to comply with laws and grant fair treatment to the petitioner. Section 56 of the Electricity Act, 2003 (hereinafter referred to as 'the 2003 Act') confers the power of disconnection of electricity supply for default in payment by a licensee and provides the conditions when such power may be invoked, the procedure and manner of the exercise of such power, the period for which such power can remain effective and the circumstances under which such a power cannot be exercised. However, once the Resolution Plan is passed, it is submitted, the Company which is taken over (in the present case, the petitioner no.1) starts on a 'clean slate theory', meaning that there is no debt in existence, all of which are extinguished after the passing of the Resolution Plan. 5
9. The learned Senior Advocate next cites Isha Marbles Vs. Bihar State Electricity Board, reported at (1995) 2 SCC 648, wherein the Supreme Court held that an Auction Purchaser cannot be fastened with the liability of the erstwhile consumer. In the said case, Section 24 of the 2003 Act was held to have been construed correctly by the High Court and that there is no charge over the property. Hence, it was held, where the premises comes to be owned or occupied by the auction purchaser, when such purchaser seeks supply of electrical energy, he cannot be called upon to clear past arrears as a condition precedent to supply.
10. Learned counsel for the distribution licensee contends that, as per Clause 28 of the agreement between the petitioner no.1-Company and the WBSEB dated November 15, 1997, all provisions of the then Indian Electricity Act, 1910 and Electricity Supply Act, 1940 and the Rules framed thereunder would be applicable.
11. Clause 18 of the said agreement stipulates that in the event petitioner no.1 failed to make payment of any bill under the agreement within the due date, the WBSEB would give it a notice of its intention to discontinue the supply of electricity and, if the payment is not received, to disconnect the supply until the full payment of all obligations, including the charges for disconnection and reconnection, is made over. After enactment of the 2003 Act, the respondent (WBSEDCL) inherited all rights and obligations in respect of the said contract from the WBSEB.
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12. On the date of disconnection of electricity, that is, November 29, 2014, the relevant laws applicable were - Section 56(1) of the 2003 Act (corresponding to Section 24 of the 1910 Act) and paragraph 4.6.1 and 4.6.4 of the Electricity Supply Code published by the West Bengal Electricity Regulatory Commission (WBERC) vide Notification No.55 dated August 7, 2013. As per the said provisions, it is argued by the WBSEDCL, two rights accrued in favour of the WBSEDCL. First, the right to recover the outstanding dues (in this case, decretal dues) and the right not to supply any electricity to any consumer or prospective consumer. Both the said rights of an electricity supplier have been recognised in Paschimanchal Vidyut Vitaran Nigam Limited and others Vs. DVS Steel and Alloys Private Limited and others, reported at (2009) 1 SCC 210.
13. The second right, as mentioned above, in any event, was not extinguished or impaired by the Resolution Plan being accepted.
14. It is argued by the learned Senior Advocate appearing for the WBSEDCL that Section 56 of the 2003 Act is not inconsistent with any provision of the IBC, and, therefore, Section 238 thereof will not come into play. Section 30(2)(e) of the IBC expressly preserves such legal right, it is argued. Moreover, it is argued that there is no conflict between Section 56 of the 2003 Act and any Clause of the Resolution Plan. Such a conflict could have arisen had the relief in terms of the paragraph 4(h)(iii)(i) as mentioned in the writ petition been granted by the NCLT, that is, the WBSEDCL was specifically deprived of its right to recover the outstanding dues (decretal debt). Even if deprived of its 7 right to recover the outstanding dues, the right of the WBSEDCL not to supply electricity to the petitioner no.1 was not curtailed or taken away.
15. The petitioners' liability, as contended in the writ petition, is limited to what is provided for in the Resolution Plan sanctioned by the NCLT on November 10, 2021 in CP (IB) No. 325/7/HDB/2018, from which it appears that the Operational Creditors were getting paid 0.25 per cent of their respective admitted dues. Had the respondent-WBSEDCL lodged its claim on the basis of the decree, the pro-rata payment to the Operational Creditors would have accordingly stood reduced from 0.25 per cent to approximately 0.19 per cent. If the amount recoverable is determined at 0.25 per cent of the decretal sum, the respondent would have received Rs.6,26,165.70p and, if determined on the basis of 0.19per cent, Rs. 4,75,885.93p.
16. There is no provision in the IBC, it is argued by the WBSEDCL, which expressly provides for expropriation of pre-existing assets of a creditor (in this case, money recoverable from the company and rights flowing from the 2003 Act and the Electricity Supply Code, 2013 as well as the agreement dated November 15, 1997), retrospectively by way of the Resolution Plan being approved by the NCLT under Section 31(1) of the IBC. However, as per the Supreme Court judgments in Ghanashyam Mishra (supra) and Essar Steel (supra), the effect of the Resolution Plan would have been that every creditor would have received in terms of the Resolution Plan (akin to a decree having various consequences for breach thereof), by virtue of Sections 33(3) 8 and 74(3) of the IBC and Regulations 39(8) and (9) of the IBBI Insolvency Resolution Process for Corporate Persons Regulations, 2020. Since the IBC, in respect of a Resolution Plan, is an expropriatory law having retrospective effect, it should be strictly construed. On this aspect, the learned Senior Advocate for the WBSEDCL relies on Chairman, Indore Vikas Pradhikaran Vs. Pure Industrial Coke & Chemicals Ltd. and others, reported at (2007) 8 SCC 705 and the judgment of Ghanashyam Mishra and Sons Private Limited Vs. Edelweiss Asset Reconstruction Company Limited, reported at (2021) 9 SCC 657.
17. It is further argued that as per the Supreme Court judgment rendered in Lalit Kumar Jain Vs. Union of India and others, reported at (2021) 9 SCC 321, the debt is not extinguished vis-à-vis the creditor, since the creditor can proceed to recover the debt against a guarantor/insurer, etc. Moreover, the creditor's other rights arising out of, or connected with, the debt is not extinguished.
18. The leaned Senior Advocate next contends, by referring to Union of India and others Vs. Dhanwanti Devi and others, reported at (1996) 6 SCC 44, that no judgment can be read like a statute. Construction of a judgment should be made in the light of the factual matrix involved. The factual matrix involved in Essar Steel (supra) and Ghanashyam Mishra (supra) were as to what amount is payable by the Resolution Applicant to the creditors of the Company. Such legal fiction of extinguishment of liability on passage of a Resolution Plan, cannot be extended to the gamut of rights under Part III of the Constitution 9 (Fundamental Rights). Similarly, a Resolution Plan cannot have the effect of altering or modifying the contractual rights of a third party.
19. For the last above proposition, the learned Senior Advocate cites Jaypee Kennsington Boulevard Apartments Welfare Association and others Vs. NBCC (India) Limited and others, reported at (2022) 1 SCC 401 and Municipal Corporation of Greater Mumbai (MCGM) Vs. Abhilash Lal and others, reported at (2020) 13 SCC 234. In this connection, the WBSEDCL also relies on two judgments of the NCLT in IMICL Dighi Maritime Limited Vs. Dighi Port Limited, reported at (2019) SCC OnLine NCLT 8142 and Phonenix Arc Pvt. Ltd. Vs. Anush Finlease and Construction Pvt. Ltd., reported at Manu/NC/8740/2020.
20. Section 238 of the IBC comes into operation, it is argued, only in cases of clear conflict between any of the IBC provisions and those of any other statute. For this proposition, the learned Senior Advocate appearing for the WBSEDCL places reliance on Macquarie Bank Limited Vs. Shilpi Cable Technologies Ltd., reported at (2018) 2 SCC
674.
21. Lastly, it is argued by the WBSEDCL that a similar contention, as the one raised by the writ petitioner, is pending consideration before the NCLAT, where no orders have been passed restoring the electricity connection in favour the Resolution Applicant. The said matter is Company Appeal (AT) (Ins.) No. 413 of 2021 [Damodar Valley Corporation Vs. Shriram Rathi Steels Pvt. Ltd.]. 10
22. It is, thus, submitted that the vital issue of alternative remedy available to the writ petitioners under Section 60(5) of the IBC is also required to be considered by the writ court while deciding the present writ petition.
23. Upon a consideration of the law on the subject, it is amply clear that Section 56 of the Electricity Act, 2003 confers power on the licensee to cut off the supply of electricity and for that purpose cut off or disconnect any electric supply line or other works being the property of such license through which electricity may have been supplied, transmitted, distributed or wheeled and may discontinue the supply until such charge or other sum, together with any expenses incurred by him in cutting off and reconnecting the supply, are paid. Such power can be exercised when the consumer neglects to pay any charge for electricity or any sum other than a charge for electricity due from him to the licensee in respect of supply, transmission, distribution or wheeling of electricity to him, after giving not less than fifteen clear days' notice in writing to the consumer, without prejudice to the rights of the licensee to recover such charge or other sum by suit.
24. Two sections of the 2003 Act are crucial in determining the binding force of the said Act - Sections 174 and 175.
25. Section 174 stipulates that the provisions of the 2003 Act shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force or in any instrument having effect by virtue of any law other than the said Act. 11
26. Section 175, however, provides that the provisions of the 2003 Act are in addition to and not in derogation of any other law for the time being in force.
27. The IBC, in its scheme, contemplates a Corporate Insolvency Resolution Proceeding (CIRP), where a resolution plan is submitted which, after passing through the scrutiny of the Resolution Professional and Committee of Creditors, is submitted to the Adjudicating Authority (NCLT). Under Section 31 (1) of the IBC, upon approval by the Adjudicating Authority, the resolution plan becomes binding on the Corporate Debtor and its employees, members, creditors, guarantors and other stakeholders involved in the resolution plan.
28. Section 238 of the IBC stipulates that the provisions of the Code shall have effect, notwithstanding anything inconsistent therewith contained in any other law for the time being in force or any instrument having effect by virtue of any such law.
29. The Supreme Court, in Essar Steel (supra) and Ghanashyam Mishra's Case (supra), has propounded the "Clean Slate" theory. According to the theory, a successful resolution applicant cannot suddenly be faced with undecided claims after the resolution plan submitted by him has been accepted, as this would amount to "a hydra head popping up"
which would throw into uncertainty amounts payable by a prospective resolution applicant who successfully takes over the business of the corporate debtor. All claims must be submitted to and decided by the resolution professional so that a prospective resolution applicant 12 knows exactly what has to be paid in order that it may then take over and run the business of the corporate debtor.
30. All such claims, which are not a part of the resolution plan, shall stand extinguished and no person will be entitled to initiate or continue any proceedings in respect of a claim, which is not part of the resolution plan.
31. The proposition was reiterated by the Supreme Court as recently as on February 17, 2022 in M/s Ruchi Soya Industries (supra), where it was held that on the date of approval of the Resolution Plan by the NCLT, all claims stood frozen, and no claim, which is not a part of the Resolution Plan, would survive.
32. The term "operational debt", as defined in Section 5 (21) of the IBC, means a claim in respect of the provision of goods or services and includes a debt in respect of the payment of dues arising under any law for the time being in force and payable to the Central or State Governments or any local authority.
33. There cannot be any doubt that the WBSEDCL, discharging the function of the State, comes within the purview of 'State' under Article 12 of the Constitution of India. The State Government is the executive authority through which the State primarily discharges its functions under the law. Hence, dues payable to the WBSEDCL squarely fall within the ambit of "operational debt" as defined under the IBC. Hence, the provisions of the IBC, as discussed above, are attracted to dues payable to the WBSEDCL.
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34. Admittedly, in the present case, the electric supply of the petitioner no. 1-company was cut off by the WBSEDCL on November 29, 2014, for non-payment of electricity charges. For restoring such connection, the licensee, under Section 56 (1) of the 2003 Act, can claim as a precondition the payment of such charge and other sum, together with any expenses incurred by the licensee in cutting off and reconnecting the supply. The expression "such", preceding "charge and other sum", refers to "any charge for electricity or any sum other than a charge for electricity due from the consumer (here, the petitioner no.1)", mentioned in the earlier part of sub-section (1) of Section 56. Thus, the dues relate back to the period immediately prior to the disconnection of electric supply, which took place on November 29, 2014, that is, before enactment of the IBC.
35. Again, upon approval of the resolution plan for the petitioner no. 1 by the NCLT (Adjudicating Authority), Amravati on November 10, 2021, all debts (including operational debts) of the petitioner no. 1 stood extinguished by application of the "Clean Slate" theory.
36. The WBSEDCL endeavours to conceptually segregate the apparently dual rights of the licensee - that of recovery of the dues and continuance of disconnection. However, such contention does not stand the test of reason, since the rights are different on surface but united in their common nucleus, which is the debt/dues to the licensee. Both of the purported dual rights emanate from such nucleus. It is the debt/dues of the consumer to the licensee which forms the core of both the rights of recovery and disconnection. 14
37. It is the claim for the dues of the consumer to the licensee in respect of electricity charge or other sums which provides the bulwark of the rights of the licensee.
38. If the debt due to the licensee (under the 2003 Act), in its avatar as an operational creditor (under the IBC), is extinguished by operation of Section 31 (1) of the IBC, read in the context of the landmark judgments of Essar Steel (supra) and Ghanashyam Mishra (supra), the common nucleus of both the rights of the licensee under the 2003 Act, that is, the rights of recovery and non-restoration of connection, is also extinguished co-equally.
39. The argument of the distribution licensee as regards the absurdity of one legal fiction (extinguishment of liability) being extended to another (extinguishment of the other separate statutory right to continue disconnection of electricity) becomes irrelevant. It is not that the statutory right, to go on discontinuing electricity, is extinguished, but such right is rendered illusory by the extinguishment of its very basis, that is, the debt/dues.
40. Section 185 (1) of the 2003 Act has repealed the Electricity Act, 1910 as well as the Electricity (Supply) Act, 1948, which governed the Agreement between the petitioner no. 1 and the WBSEDCL dated November 15, 1997, as per Clause 28 of the said Agreement. However, the stipulations of Clause 18 of the Agreement, as to disconnection and reconnection of electricity and the attending conditions, are identical with the provisions of Section 56 (1) of the 2003 Act and, thus, survive the repeal of the 1910 and 1948 Acts. 15
41. By operation of Section 31(1) of the IBC, as repeatedly interpreted by the Supreme Court, the debt, which is the premise of the right to continue disconnection, is itself extinguished after approval of the resolution plan. In the absence of any such dues, both the rights of the licensee under Section 56 (1) of the 2003 Act - of recovery and discontinuation of electric supply - lose their sanction. Since the 'dues' themselves are extinguished, the payment of such non-existent dues is rendered meaningless and the successful resolution applicant cannot be saddled with such liability.
42. The payables for reconnection include three components as per Section 56 (1), that is, due electric charges, disconnection charge and reconnection charge. The first two, being pre-Resolution Plan dues, stand extinguished upon approval of the resolution plan by the Adjudicating Authority (NCLT). However, the reconnection charges become due only subsequently, at the juncture when the electric connection of the petitioner no. 1-company is actually restored. Thus, there is no question of the last component of the payables (reconnection charge), which arise subsequently, being extinguished by virtue of approval of the resolution plan.
43. Hence, the only reasonable conclusion which can be reached in the instant case is that the WBSEDCL is duty-bound to restore the electric connection of the petitioner no.1-company immediately upon the petitioner no.1 making payment of reconnection charges to the WBSEDCL.
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44. The civil court's decree dated December 24, 2018 in favour of the WBSEDCL stood on the very plinth of the claim of dues, which has since been extinguished by approval of the Resolution Plan. Hence, the decree is rendered inexecutable.
45. Looking at the issue from a different perspective, the civil court's decree per se did not create an independent right of the WBSEDCL but merely endorsed its right to recover dues, as a precondition of reconnection, conferred on the licensee under Section 56 (1) of the 2003 Act. With the said right itself becoming delusional by extinguishment of the dues, the consequential decree is automatically denuded of sanction.
46. From yet another point of view, the civil court's decree derives its sanction from Section 2 (2) of the Code of Civil Procedure, which also falls within the expression "any other law" by virtue of which the decree, an "instrument" under Section 238 of the IBC, has effect. Such inconsistency between the decretal entitlement and the extinguishment of the dues, thus, entails that the former yields to the latter in terms of Section 238 of the IBC.
47. In such view of the matter, W.P.A. No. 1936 of 2022 is allowed, thereby directing the WBSEDCL to restore electric supply to the petitioner no. 1, subject to the petitioner no. 1 paying only the reconnection charges, as expeditiously as possible, preferably within a fortnight from after the deposit of such charges. It is made clear that the WBSEDCL shall not insist upon deposit of its previous claim of the past dues of electricity and other charges, for non-payment of 17 which the disconnection was effected in the first place and/or the disconnection charges, as a condition of the reconnection or otherwise, which stand extinguished.
48. There will be no order as to costs.
49. Urgent certified copies of this order shall be supplied to the parties applying for the same, upon due compliance of all requisite formalities.
( Sabyasachi Bhattacharyya, J. )