Privity Over Possession: NCLT Chennai Admits Insolvency Plea, Holds Corporate Debtor Liable for Lessee’s Electricity Dues
Privity Over Possession: NCLT Chennai Admits Insolvency Plea, Holds Corporate Debtor Liable for Lessee’s Electricity Dues
Introduction
The National Company Law Tribunal (NCLT Chennai) admitted a Section 9 application under the Insolvency and Bankruptcy Code, 2016 (IBC), holding that a corporate debtor cannot evade liability for electricity dues on the ground that the power was consumed by its lessee. The Tribunal ruled that liability flows from privity of contract under the Power Supply Agreement and not from actual consumption of services.
Factual Background
The application was filed by OPG Power Generation Pvt Ltd against AKMG Alloys Pvt Ltd for unpaid electricity dues arising from a Power Supply Agreement dated April 1, 2018. OPG Power submitted that it had supplied electricity in terms of the agreement and raised invoices in 2019. The invoices were not disputed at the relevant time. Despite repeated reminders and issuance of a demand notice under Section 8 of the IBC, the outstanding principal amount along with contractually agreed interest remained unpaid.
AKMG Alloys contended that its premises had been leased to Ferrosco Industries Pvt Ltd during the relevant period and that Ferrosco was the actual consumer of electricity. It also raised disputes regarding billing and interest calculations.
Procedural Background
The matter was heard by a coram comprising Judicial Member Jyoti Kumar Tripathi and Technical Member Ravichandran Ramasamy. The Tribunal examined the Power Supply Agreement, invoices raised, and the defence put forth by the corporate debtor. Upon consideration of the material on record and the submissions of the parties, the Tribunal proceeded to determine whether operational debt and default were established and whether the defence disclosed a pre-existing dispute within the meaning of the IBC.
Issues
1. Whether a corporate debtor can avoid liability for electricity dues by asserting that the electricity was consumed by its lessee.
2. Whether the disputes raised by the corporate debtor constituted a bona fide and pre-existing dispute under Section 9 of the IBC.
3. Whether operational debt and default were established so as to warrant admission of the insolvency application.
Contentions of the Parties
The operational creditor, OPG Power Generation Pvt Ltd, contended that the Power Supply Agreement was validly executed and remained in force. It argued that AKMG Alloys was the contracting party and was therefore liable to discharge payment obligations irrespective of internal lease arrangements. The applicant emphasised that invoices had not been disputed at the relevant time and that the statutory demand notice under Section 8 had gone unanswered in substance.
AKMG Alloys argued that the electricity was actually consumed by Ferrosco Industries Pvt Ltd, to whom the premises had been leased. It asserted that liability, if any, should fall upon the lessee. It further raised disputes relating to billing and the computation of interest.
Reasoning and Analysis
The Tribunal noted that the execution of the Power Supply Agreement was undisputed and that supply of electricity had not been denied. The agreement had neither been terminated nor novated.
The bench held that so long as the corporate debtor remained the contracting party under the agreement, internal lease arrangements could not absolve it of contractual liability towards the operational creditor. Liability under Section 9 of the IBC flows from privity of contract and not from actual usage of services.
In assessing the plea of dispute, the Tribunal applied the test laid down by the Supreme Court in Mobilox Innovations Pvt Ltd v Kirusa Software Pvt Ltd. It found that the disputes raised were neither bona fide nor pre-existing in nature. The invoices had not been contemporaneously contested, and the defence appeared to be an afterthought. Accordingly, the Tribunal concluded that operational debt and default stood established.
Decision
The NCLT Chennai admitted the Section 9 petition against AKMG Alloys Pvt Ltd. A moratorium under Section 14 of the IBC was imposed, and the Corporate Insolvency Resolution Process (CIRP) was initiated against the corporate debtor.
In this case the applicant was represented by Advocates Jeevan Hari, Aparajitha Vishwanath, Niveda Cp & Sneha Parthasarathy.
