Nanu Tradecom Private Limited & ... vs West Bengal State Electricity ...
2022 Latest Caselaw 5369 Cal

                       In the High Court at Calcutta
                      Constitutional Writ Jurisdiction
                               Appellate Side

The Hon'ble Justice Sabyasachi Bhattacharyya



                            WPA No. 7364 of 2019

               Nanu Tradecom Private Limited & Anr.
                                  Vs.
  West Bengal State Electricity Distribution Company Limited & Ors.



      For the petitioners             :      Mr. Jishnu Saha,
                                             Mr. Tanoy Chakraborty,
                                             Mr. Siddharth Sharoff

      For the WBSEDCL                 :      Mr. Srijan Nayak,
                                             Mr. Sujit Sankar Koley

      Hearing concluded on            :      09.06.2022

      Judgment on                     :      12.08.2021



      Sabyasachi Bhattacharyya, J:-



 1.     The present writ petition has been filed by the petitioners,

        challenging an order of rejection dated March 16, 2019, by which

        the   respondent    no.3,   that   is,   the   Chief   Engineer,   Central

Commercial Department, West Bengal State Distribution Company

Limited (WBSEDCL) refused to grant new electricity connection to

the petitioners in respect of the factory of the petitioner no.1-

Company unless the alleged outstanding dues left by the erstwhile

owner, to the tune of above Rs.3.5 crore, was deposited by the

petitioner.

2. The learned Senior Advocate appearing for the petitioner contends

that on March 31, 2018, the liquidator of Barjora Steel Re-Rolling

Mills Private Limited (in liquidation) published an invitation of

Expression of Interest (EOI) for acquisition of the assets/plant of

the company (in liquidation). The list of assets included in the

invitation of EOI included land, the factory, plant and machinery on

such land. It is submitted that the EOI disclosed that the assets

would be sold by way of slump sale and the applicant acquiring the

asset would be required to endeavour to run the concern/business

of the company after acquiring its assets. The entire aforesaid

developments took place in connection with a proceeding initiated

for corporate resolution under the Insolvency and Bankruptcy Code,

2016 (hereinafter referred to as 'the IBC') in which the corporate

resolution had failed and liquidation had been initiated.

3. It is submitted that the petitioners' bid for the assets was accepted

by the liquidator and the assets were ultimately sold to the

petitioners. Since there was no electricity connection, the

petitioners applied for fresh electricity in respect of the factory

premises.

4. However, it was alleged by the WBSEDCL that there was nexus

between the petitioners and the erstwhile owner of the company,

due to which the petitioners had to clear the outstanding dues prior

to getting a new electricity connection.

5. The learned Senior Advocate for the petitioners cites Committee of

Creditors of Essar Steel India Limited Vs. Satish Kumar Gupta,

reported at 2019 SCC OnLine SC 1478 for the proposition that a

successful resolution applicant cannot suddenly be faced with

'undecided' claims after the resolution plan submitted by him was

accepted as this would amount to a hydra-head popping up which

would throw into uncertainty the amount payable by a prospective

resolution applicant who successfully takes over the business of the

corporate debtor. Unless the claims were submitted and decided by

the resolution professional, the successful resolution applicant

starts all over on a 'fresh slate'.

6. Only upon failure of the corporate insolvency resolution process,

the IBC provides for liquidation, which is governed by Chapter III of

the IBC. The learned Senior Advocate places reliance on the said

Chapter, in particular referring to Sections 36 to 42 of the IBC, to

elucidate the scheme of liquidation under the IBC.

7. It is submitted that only if claims are admitted by the liquidator

under Section 40 of the IBC, those can be a part in the distribution

of proceeds from the sale of liquidation assets under Section 53 of

the IBC.

8. By placing reliance on Isha Marbles Vs. Bihar State Electricity Board

and another, reported at (1995) 2 SCC 648 and AI Champdani

Industries Limited Vs. Official Liquidator and another, reported at

(2009) 4 SCC 484, the petitioners submit that it is settled law that

in the event of an auction sale of the assets of an entity, the supply

of electricity to the purchaser of the assets cannot be denied on

account of outstanding debts of the defaulting entity.

9. In view of the claim of Section 238 of the IBC, which is a non

obstante clause, the question of any demand being made by the

respondent no.1 on the petitioners or refusal to grant fresh

electricity connection at its factory at Durgapur on account of

alleged outstanding dues of the company in liquidation, does not

and cannot arise, it is argued.

10. Learned counsel for the distribution licensee (respondent no.1)

contends that the sale was effected in favour of the writ petitioners

on "as is where is, whatever there is" basis. It will appear from the

terms and conditions of sale that there were specific clauses for

payment of any statutory dues apart from sale price, it is

contended.

11. Learned counsel for the respondent no.1 further submits that

Clause 3.4.2 of Regulation 55 dated August 7, 2013 of the West

Bengal Regulatory Commission (WBERC) as well as Clause 2.5 of

the WBSEDCL Procedure-B (2010) clearly say that where there are

arrears of charges outstanding for a premises, before the

application is processed, the applicant shall be liable for clearing

the dues if nexus is established with the erstwhile defaulting

consumer.

12. It is further submitted that the Electricity Act, 2003 (in short, 'the

2003 Act'), being an earlier enactment, prevails over the IBC, even if

there is a non obstante clause in the latter enactment, since the

earlier enactment is a special enactment on the particular subject

in issue.

13. By Notification dated December 26, 2018, it was declared by the

Government of West Bengal that with effect from January 1, 2019,

the entire distribution business and activities undertaken by the

Durgapur Project Limited (DPL) along with all assurances, assets

and liabilities will be transferred to the WBSEDCL via the

mechanism of slump transaction of assets.

14. Under the terms and conditions of sale, it is submitted, the

petitioners acknowledged that the assets of the company were being

transferred by way of slump sale. However, there is no other

reference to slump sale in the relevant documents.

15. The National Company Law Tribunal (NCLT), in connection with the

corporate resolution proceedings, specified vide order dated

September 14, 2018 that the petitioner would have to make

application in the prescribed format for reconnection. Since a pre-

condition of such restoration of connection was payment of the

outstanding dues against electricity, the petitioners could not avoid

the liability to pay the same.

16. Since the business was sold as a whole, as a 'going concern', it is

the liability of the petitioner-company to pay the outstanding

electricity charges to get electricity line at the factory premises.

17. Learned counsel for the respondent no.1 submits that the

respondent no.1 is entitled to Rs.3.5 crore as outstanding dues

from M/s. Barjora Steel and Re-Rolling Mills Private Limited, which

was purchased by the petitioner through a slump sale. It is

submitted that repeated assurances were given by the erstwhile

owners to clear off the outstanding dues of the respondent no.1.

18. Under the provisions of the 2003 Act, as per Section 48 thereof, it is

submitted that the WBSEDCL is empowered to put any restriction

in providing the connection to the petitioner for the purpose of

preventing economic loss.

19. In the present matter, the petitioners were all along aware of its

liability before entering into an agreement with M/s. Barjora Steel

and Re-Rolling Mills Private Limited. As such, the petitioner-

company has made incorrect declaration before the WBSEDCL or

before the erstwhile licensee stating that there is no connection

either live or disconnected. Despite having full knowledge of the

outstanding amount, the petitioner has sought to avoid payment of

same, thereby depriving the respondent-company of the said dues.

20. Since it is the admission of the petitioner-company that the entire

sale proceeding is pending with the NCLT for the adjudication, the

petitioner cannot claim benefit of the scheme of the IBC, it is

contended.

21. The electricity connection to the company-in-question was

disconnected in the month of August, 2017, it is submitted.

22. It will be clear from the terms and conditions of the sale under

Clauses 6, 7 and 11 that the purchaser takes the responsibility of

clearing the dues in relation to the property and the liquidator will

have no liability. Admittedly, the sale proceeding was challenged by

the erstwhile licensee before the NCLT, Kolkata, which is still

pending.

23. The sale proceedings-in-question, it is argued, was a process for

slump sale as defined under Section 2(42c) of the Income Tax Act,

1961 and it is made clear that the transfer of assets without

transfer of liabilities is not a slump sale.

24. Sections 174 and 175 of the 2003 Act, it is reiterated, empower the

WBSEDCL to act under the provisions thereunder.

25. It may be noted that the liquidation process in the present case was

undertaken as a result of the failure of the corporate insolvency

resolution proceeding and is governed by the IBC. As such,

irrespective of the nomenclature in the terms and conditions of the

sale, the provisions of the IBC prevail.

26. Moreover, the distribution license had made a claim before the

Adjudicating Authority, during the resolution process, which was

not admitted in the said proceeding. Hence, the distribution

licensee cannot make a claim all over again, despite such refusal by

the Adjudicating Authority to admit its claim. Mere pendency of an

appeal against such refusal and/or the order of sale does not, it is

well-settled, ipso facto, operate as a stay or cancellation of such

refusal of claim.

27. The IBC is a self-sufficient Code and provides a complete

mechanism in respect of Corporate Insolvency Resolution and

Liquidation.

28. Liquidation, as envisaged in the IBC, is not a mere isolated offshoot

of Insolvency Resolution proceeding but is one of the logical

conclusions of a resolution proceeding. The procedure as

contemplated in the IBC is an integrated continuum.

29. In order to examine the scheme of liquidation under the IBC in such

context, Section 5(18) of IBC is required to be considered first. The

said sub-section provides that "liquidator" means of an insolvency

professional appointed as a Liquidator in accordance with the

provisions of Chapter III or Chapter V of Part-II, as the case may be.

Section 5(20) stipulates that "operational creditor" means a person

to whom an operational debt is owed and includes any person to

whom such debt has been legally assigned or transferred. Section

5(21), on the other hand, defines "operational debt" as a claim in

respect of the provision of goods or services including employment

or a debt in respect of the payment of dues arising under any law

for the time being in force and payable to the Central Government,

any State Government or any local authority.

30. Section 33, IBC provides for initiation of liquidation. It is clear from

a plain reading of Section 33 that liquidation begins where a

Corporate Insolvency Resolution fails.

31. Section 35 stipulates the powers and duties of the liquidator.

Clauses (a) to (d), (f) and (j) of Section 35, sub-section (1) are

relevant in the context. Clause (a) empowers the liquidator to verify

claims of all the creditors, Clause (b) to take into custody or control

all the assets, property, effects and actionable claims of the

corporate debtor, Clause (c) to evaluate the assets and property of

the corporate debtor in the manner as may be specified by the

Board and prepare a report and Clause (d) to take such measures to

protect and preserve the assets and properties of the corporate

debtor as he considers necessary. Clause (f) confers power on the

Liquidator, subject to Section 52, to sell the immovable and

movable property and actionable claims of the corporate debtor in

liquidation by public auction or private contract, with power to

transfer such property to any person or body corporate or to sell the

same in parcels in such manner as may be specified. The proviso

thereto says that the liquidator shall not sell immovable and

movable property or actionable claims of the corporate debtor in

liquidation to any person who is not eligible to be a resolution

applicant. Clause (j) empowers the liquidator to invite and settle

claims of the creditor and claimants and distribute proceeds in

accordance with the provisions of the Code.

32. Section 38 of the IBC provides for consolidation of claims by the

liquidator, Section 39 the verification of claims and Section 40 deals

with the admission or rejection of claims by the liquidator.

33. Hence, the powers of the liquidator are on a similar footing as those

of a Resolution Professional in a resolution proceeding. It is also

noteworthy that Section 5 (18) of the IBC stipulates that a

Liquidator has to be a Resolution Professional in the first place.

34. Section 53 provides for distribution of assets in liquidation and sets

out the order of priority of distribution of proceeds from the sale of

the liquidation assets. The sixth category in such pecking order is

Section 53(1)(f), "any remaining debts and dues". Clause (f) is the

only provision in Section 53 which confers rights on the operational

creditors to recover their dues.

35. As such, Section 53 is the culmination of the entire endeavour of

the Liquidator and the order of priority given therein cannot be

overridden by any of the operational creditors of the corporate

debtor by jumping the queue in contravention of the priorities

enumerated in Section 53.

36. What is next relevant is Regulation 32 of the Insolvency and

Bankruptcy Board of India (Liquidation Process) Regulations, 2016.

The different types of sale of asset have been enumerated therein.

Up to Clause (d) of Regulation 32, sale of assets is dealt with.

Clause (e) provides for sale of the corporate debtor as a going

concern. Again, Clause (f) contemplates the business of the

corporate debtor being sold as a going concern.

37. Regulation 32-A of the said Regulations provides for sale as a going

concern. Sub-regulation (2) of Rule 32-A stipulates that for the

purpose of sale under Sub-regulation (1), the group of assets and

liabilities of the corporate debtor, as identified by the committee of

creditors under sub-regulation (2) of Regulation 39-C of the

Insolvency and Bankruptcy Board of India (Insolvency Resolution

Process for Corporate Persons) Regulations, 2016, shall be sold as a

going concern.

38. On the other hand, Regulation 32-A (3) provides that where the

committee of creditors has not identified the assets and liabilities

under sub-regulation (2) of Regulation 39-C of the Insolvency and

Bankruptcy Board of India (Insolvency Resolution Process for

Corporate Persons) Regulations, 2016, the liquidator shall identify

and group the assets and liabilities to be sold as a going concern, in

consultation with the consultation committee.

39. It is evident from the scheme of the IBC, in respect of Liquidation, is

that the pecking order as stipulated in Section 53 of the IBC cannot

be superseded by any of the categories as provided therein. The said

provision is set out below for convenience:

"53. Distribution of Assets. - (1) Notwithstanding anything to the contrary contained in any law enacted by the Parliament or any State Legislature for the time being in force, the proceeds from the sale of the liquidation assets shall be distributed in the following order of priority and within such period and in such manner as may be specified, namely:-

(a) the insolvency resolution process costs and the liquidation costs paid in full;

(b) the following debts which shall rank equally between and among the following:-

(i) workmen's dues for the period of twenty-four months preceding the liquidation commencement date; and

(ii) debts owed to a secured creditor in the event such secured creditor has relinquished security in the manner set out in section 52;

(c) wages and any unpaid dues owed to employees other than workmen for the period of twelve months preceding the liquidation commencement date;

(d) financial debts owed to unsecured creditors;

(e) the following dues shall rank equally between and among the following:-

(i) any amount due to the Central Government and the State Government including the amount to be received on account of the Consolidated Fund of India and the Consolidated Fund of a State, if any, in respect of the whole or any part of the period of two years preceding the liquidation commencement date;

(ii) debts owed to a secured creditor for any amount unpaid following the enforcement of security interest;

(f) any remaining debts and dues;

(g) preference shareholders, if any; and

(h) equity shareholders or partners, as the case may be.

(2) Any contractual arrangements between recipients under sub-section (1) with equal ranking, if disrupting the order of priority under that sub-section shall be disregarded by the liquidator.

(3) The fees payable to the liquidator shall be deducted proportionately from the proceeds payable to each class of recipients under sub-section (1), and the proceeds to the relevant recipient shall be distributed after such deduction.

Explanation.- For the purpose of this section--

(i) it is hereby clarified that at each stage of the distribution of proceeds in respect of a class of recipients that rank equally, each of the debts will either be paid in full, or will be paid in equal proportion within the same class of recipients , if the proceeds are insufficient to meet the debts in full; and class of recipients, if the proceeds are insufficient to meet the debts in full; and class off recipients, if the proceeds are insufficient to meet the debts in full; and

(ii) the term "workmen's dues" shall have the same meaning as assigned to it in section 326 of the Companies Act, 2013."

40. Thus, the operational creditors, who fall within category (f), that is,

"any remaining debts and dues", cannot claim any priority over the

preceding categories in having their debts paid off.

41. However, that is precisely what will happen if the argument of the

WBSEDCL is accepted, that is, if the expression "sale of going

concern", as used in the IBC and connected Regulations in respect

of liquidation, is construed to include transfer of pre-CIRP liabilities

of the corporate debtor.

42. Regulation 32-A of the Liquidation Process Regulations of 2016

clearly specifies that "liabilities" for the purpose of going concern

sales in liquidation are only those liabilities which have been

identified and earmarked for the going concern sale by the

committee of creditors, if not, by the liquidator.

43. The said provision, read with Regulation 39-C of the Corporate

Persons Regulations, 2016, is unambiguous and leaves no scope of

construing that all the liabilities, including pre-CIRP liabilities, are

transferred to the successful Resolution Applicant in a going

concern sale.

44. It is well-settled that the debts of the power distribution licensee do

not operate as charge on the assets of the corporate debtor.

45. Hence, both sale of the corporate debtor and the business(es) of the

corporate debtor as a going concern, as envisaged in Regulation 32,

Clauses (e) and (f) respectively, do not contemplate automatic

transfer of all pre-CIRP liabilities of the corporate debtor to the

auction purchaser.

46. In any event, the Regulations framed under the authority conferred

by the IBC cannot be construed to override the provisions of the

Code itself. Hence, no interpretation contrary to Section 53 of the

IBC which, again, is preceded by a non obstante clause, can be

attributed to the expression "going concern sale", as contemplated

in Rule 32 of the Liquidation Process Regulations, 2016.

47. The expressions "going concern sale", "as is where is basis", etc.

may have several shades of connotations in market parlance.

However, in an auction sale under an IBC liquidation process, such

terms are circumscribed by the provisions of the Code and the

ancillary Regulations, as discussed above.

48. Hence, in the present case, the claim of the WBSEDCL of

outstanding dues from the petitioners as a pre-condition for grant of

electricity cannot be sustained.

49. Thus, WPA 7364 of 2019 is allowed, thereby setting aside the

order of rejection dated March 16, 2019, by which the respondent

no.3, that is, the Chief Engineer, Central Commercial Department,

West Bengal State Distribution Company Limited (WBSEDCL)

refused to grant new electricity connection to the petitioners in

respect of the factory of the petitioner no.1-Company unless the

alleged outstanding dues left by the erstwhile owner, to the tune of

above Rs.3.5 crore, was deposited by the petitioner.

50. The WBSEDCL shall give new electricity connection without

insisting upon payment of such dues by the petitioners, subject to

compliance of all other formalities by the petitioners in connection

with their application for new electricity connection at the earliest,

latest within a month from compliance of such formalities by the

petitioners.

51. There will be no order as to costs.

52. Urgent certified server copies of this order, if applied for, be

supplied to such applicants upon satisfaction of all requisite

formalities.

( Sabyasachi Bhattacharyya, J. )

Later:

At this juncture after delivery of judgment learned counsel for the

respondent-Distribution licensee makes a prayer for stay of operation of the

above judgment and order.

However, since a month has been given for the WBSEDCL to

reconnect electricity, such further stay is deemed unnecessary and hence

refused.

( Sabyasachi Bhattacharyya)