Background

Earthcon Universal Infratech Pvt. Ltd. entered the Corporate Insolvency Resolution Process (CIRP) under Section 7 of the Insolvency and Bankruptcy Code (IBC) in 2019. The Resolution Professional (RP) then took charge of managing the company’s operations during the moratorium period, including providing maintenance services and electricity to home buyers who had taken possession of their apartments between February 2018 and January 2020. At the commencement of insolvency, the home buyers were paying a maintenance fee of Rs. 1 per sq. ft. plus GST. However, there was an outstanding electricity bill payable to Noida Power Corporation Ltd. (NPCL).

Key Issues and Decisions

1. Competency of NCLAT/NCLT to Consider the Constitution of the Association of Allottees: The National Company Law Appellate Tribunal (NCLAT) ruled that it lacks the authority to decide on the constitution of the association of allottees. Nevertheless, the Corporate Debtor remained responsible for outstanding maintenance charges and electricity dues until the association of allottees took over the project’s maintenance.
2. Approval of CoC for Maintenance Fees and Electricity Dues: The RP, responsible for running the Corporate Debtor as a going concern, sought the approval of the Committee of Creditors (CoC) to determine maintenance fees and recover electricity dues. The NCLAT found this appropriate and stated that the RP had kept the allottees informed about the necessity to clear outstanding dues to avoid disconnection of electricity supply.
3. Authority of CoC’s Business Decisions: The allottees, represented by their Authorized Representative in the CoC meetings, participated in the decision-making process, including voting on maintenance fees and electricity dues. Consequently, they cannot question the authority of the CoC regarding these decisions. The commercial decisions of the CoC are paramount and non-justiciable​.
4. Accounting of Electricity Charges as CIRP Costs: The NCLAT cited its previous judgment in Shailesh Verma vs. Maharashtra State Electricity Distribution Company, concluding that electricity charges, as an essential service, must be treated as CIRP costs and paid accordingly. Although the Corporate Debtor is not liable for these charges during the moratorium period, it must settle them to maintain essential services.

Conclusion

The NCLAT dismissed the appellants’ contentions and upheld the CoC’s decisions regarding the revision of maintenance fees and recovery of electricity dues. It also reinforced the RP’s responsibility to manage the Corporate Debtor as a going concern and the necessity of paying for essential services during the insolvency process

Case Title: Sanskriti Allottee Welfare Association (Reg.) and Anr. v. Gaurav Katiyar (RP) and Anr., Company Appeal (AT) (Insolvency) No. 878 of 2023.