Allahabad High Court allows UP Electricity Department to recover dues under IBC from company directors

Allahabad High Court allows UP Electricity Department to recover dues under IBC from company directors

Notes that the approval of a resolution plan did not absolve the guarantor of his liability

The Allahabad High Court has upheld a demand notice issued by the Uttar Pradesh Electricity Department to recover Rs.9 crore electricity dues from a defaulter company, Trimurti Concast Pvt Ltd.

In the Narendra Singh Panwar vs Pashchimanchal Vidyut Vitran Nigam Limited case, the company was declared insolvent under the provisions of the Insolvency and Bankruptcy Code (IBC), 2016, and the resolution plan (RP) was approved by the National Company Law Tribunal (NCLT).

The petitioner, one of the two directors of the company, filed a plea against the June 2022 demand notice under Section 3 read with Section 5 of the UP Government Electrical Undertakings (Dues Recovery) Act, 1958 by the electricity department for the recovery of dues of the company.

Appearing on behalf of the electricity department, Pranjal Mehrotra, the counsel, contended that the approval of the RP in the insolvency proceedings would ipso facto discharge both directors.

However, the high court bench comprising Justice Sunita Agarwal and Justice Vipin Chandra Dixit rejected the argument of the petitioner. It noted that the approval of an RP did not absolve the guarantor of his liability, arising out of an independent contract of guarantee.

While dismissing the petition, the court held, "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, all liabilities of the directors, who may be the guarantor, stood automatically discharged/extinguished."

It added that the extent of the guarantor's liability would depend on the terms of the guarantee/contract.

Arguing on the matter, the counsel submitted that clause 4.3(f) and clause 6.15 of the Electricity Supply Code, 2005 empowered the department to issue recovery proceedings against the directors of the company. Any payment due to the licensee company could be recovered as arrears of land revenue as per the provisions of the 1958 Act.

He further submitted that out of the total outstanding dues of Rs.9 crore, only Rs.6.62 lakh was distributed as per the approved resolution plan, under the March 2022 order passed by the NCLT, Allahabad.

Meanwhile, the counsel produced a January 2018 letter from the UP Power Corporation to assert that the direction was issued to the managing directors of all the discoms to recover the dues of electricity from the director/owner of the defaulter company. Clause 4.3 (f)(v) provided that the directors were liable for the company's electricity dues.

The bench relied on the judgment of the Supreme Court in the State Bank of India vs V Ramakrishna and Another case, wherein it was held that the object of the IBC was not to allow personal guarantors such as the directors, who were in the 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 of the liability of the personal guarantor of the corporate debtor had been answered. But the extent of liability of the petitioner or another director of the company as a personal guarantor was not answered, as no arguments were placed in that context.

The judges ruled, "The challenge to the demand notice for electricity dues issued jointly to the directors of the corporate debtor, the defaulter company, which went into insolvency, cannot be sustained on the ground that the acceptance of the resolution plan, all liabilities of the directors, who may be the guarantor, stood automatically discharged/extinguished."