Allahabad High Court allows UP Electricity Department to recover ₹ 9 crore electricity dues from directors of insolvent defaulter company

The Allahabad High Court recently upheld a demand notice issued by Uttar Pradesh Electricity Department to recover ₹ 9 crore electricity dues from defaulter company which was declared insolvent under the provisions of the Insolvency and Bankruptcy Code, 2016, and the resolution plan approved by the National Company Law Tribunal (NCLT) [Narendra Singh Panwar v Pashchimanchal Vidyut Vitran Nigam Limited]..The present plea was filed against the notice of demand dated June 30, 2022 under Section 3 read with Section 5 of the UP Government Electrical Undertakings (Dues Recovery) Act of 1958 by the Electricity department for recovery of electricity dues of the company named M/s Trimurti Concast Pvt Ltd. The petitioner in the case was one of the two directors of the company.The main contention of the counsel for the petitioner was that approval of the resolution plan in the insolvency proceeding in relation to the defaulter company would ipso facto discharge both the directors of the defaulter company..A bench of Justices Sunita Agarwal and Vipin Chandra Dixit rejected the argument noting that the 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."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 writ petition is, accordingly, dismissed," the Court held..To what extent, the liability of a guarantor can be pressed into service would depend on the terms of the guarantee/contract itself, the Court added.Pranjal Mehrotra, counsel for the Electricity Department submitted that clause 4.3(f) and clause 6.15 of the Electricity Supply Code, 2005 clearly empower the 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 Act 1958, in accordance with the clause 6.15 of the Electricity Supply Code.It was further submitted that out of total outstanding dues of the corporation against the defaulter company to the tune of ₹9 crores, only an amount of ₹6.62 lakh was directed to be distributed as per the approved resolution plan, under the order dated March 22, 2022 passed by the NCLT, Allahabad..A letter of January 11, 2018 by the UP Power Corporation was produced before Court to assert that the direction was issued to Managing Directors of all the Discoms, to recover dues of electricity from the director/owner of the defaulter company. It was argued that Clause 4.3 (f)(v) clearly provides that the directors of the company shall be liable for the electricity dues of the company..The bench relied upon Supreme Court judgment in State Bank of India vs V. Ramakrishna and another wherein it was held that the object of the IBC is not to allow personal guarantors such as directors, who are in management of the companies, to escape from an independent and co-existent liability to pay off the entire outstanding debt. .The Court noted 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, has been answered. However, for the rest of the issues, if any, arise with regard to the nature or extent of liability of the petitioner or another director of the company as personal guarantor, the same were not answered as no arguments have been placed in that regard, the Court added."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," the Court concluded..[Read Order]