Tribunal directs Punjab State Power Corporation Limited to provide fresh electricity connection without insisting on pre-insolvency dues of Cheema Spintex Limited, emphasizing adherence to Insolvency and Bankruptcy Code's statutory waterfall mechanism.
In a significant judgment delivered on September 10, 2026, the National Company Law Tribunal (NCLT), Chandigarh Bench, in the matter of Harish Kumar Agarwal v. Punjab State Power Corporation Limited (PSPCL) and another, firmly held that pre-Corporate Insolvency Resolution Process (pre-CIRP) electricity dues of a corporate debtor cannot be enforced against a successful auction purchaser as a condition precedent for granting a fresh electricity connection.
The case arose after Mr. Harish Kumar Agarwal, the successful auction purchaser of assets belonging to Cheema Spintex Limited (the Corporate Debtor), sought a fresh electricity connection from PSPCL for the premises acquired through liquidation proceedings. PSPCL denied the application citing outstanding electricity dues amounting to approximately Rs. 43.95 lakh, which had escalated to Rs. 1.61 crore including interest, surcharge, and penalties, incurred by the corporate debtor before the insolvency process.
The Applicant challenged this refusal before the NCLT under Section 60(5) of the Insolvency and Bankruptcy Code, 2016 (IBC), contending that the dues had already been admitted and were part of the liquidation proceedings managed by the appointed Liquidator, Mr. Arun Gupta. The Applicant argued that demanding payment from him would be contrary to the statutory framework of the IBC and would amount to circumventing the liquidation process.
The Tribunal examined the facts and found that PSPCL had indeed admitted a claim of Rs. 43,95,270 during the CIRP, which was carried forward into the liquidation stage and treated as a claim under the statutory waterfall mechanism prescribed by Section 53 of the IBC. The Liquidator confirmed that the liquidation estate proceeds were insufficient to satisfy even secured creditors fully, leaving no amount for distribution to PSPCL's admitted claim.
Refusing to allow recovery from the auction purchaser, the Tribunal held that the successful auction purchaser cannot be saddled with the pre-CIRP liabilities of the Corporate Debtor. The ruling emphasized that the sale was conducted under the liquidation process and the terms, although "as is where is," cannot override the statutory insolvency scheme. The Tribunal also relied on recent precedents including the Supreme Court's judgment in Tata Power Western Odisha Distribution Ltd. v. Jagannath Sponge Pvt. Ltd., which similarly ruled against recovery of pre-insolvency dues from resolution applicants or auction purchasers.
Consequently, the Tribunal directed PSPCL to sanction and provide a fresh electricity connection to Mr. Agarwal at the purchased premises without insisting on clearance of the Corporate Debtor's outstanding pre-CIRP electricity dues. This direction was subject only to the Applicant complying with the usual statutory, technical, and procedural requirements for obtaining a new connection, excluding any demand for past dues of the Corporate Debtor.
The Liquidator was held discharged from the proceedings but remained bound to comply with any directions issued by the Tribunal. Notably, PSPCL did not file any reply despite opportunity being given by the Tribunal.
This judgment reaffirms the primacy of the insolvency resolution and liquidation framework in dealing with pre-insolvency claims and protects successful auction purchasers from being burdened with liabilities that belong to the corporate debtor before insolvency proceedings. It strengthens the sanctity of the statutory waterfall mechanism and ensures that electricity distribution companies cannot circumvent insolvency laws by recovering dues outside the prescribed process.
Bottom Line:
Pre-CIRP dues of the Corporate Debtor cannot be enforced against a Successful Auction Purchaser as a condition for granting a fresh electricity connection, as such recovery would circumvent the statutory mechanism under the Insolvency and Bankruptcy Code, 2016.
Statutory provision(s):
Section 53, Section 60(5) of the Insolvency and Bankruptcy Code, 2016; Rule 11 of the National Company Law Tribunal Rules, 2016
