High Court in Allahabad allows UP Electricity Department to recover electricity dues worth Rs. 9 Crore from the directors of insolvent defaulter company

Recently, a resolution plan was approved by the National Company Law Tribunal for an insolvent company. The Uttar Pradesh Electricity Department issued a demand notice to recover Rs. 9 Crore electricity dues from an insolvent company per the process laid down by the Insolvency and Bankruptcy Code, 2016.

In the present case, the Electricity Department has challenged the notice of demand dated June 30, 2022, under Section 3 and Section 5 of the UP Government Electrical Undertakings (Dues Recovery) Act of 1958 for the recovery of electricity dues from Trimurti Concast Pvt Ltd, by one of its directors. The petitioner has taken a defense of insolvency proceeding for the discharge of their liability of the dues of the defaulting company by ipso facto. The same was rejected by the bench of the Allahabad High Court stating that approval of the resolution plan does not dissolve a debtor or guarantor from his or her liability through ipso facto.

As per the Electricity Supply Code, 2005, the department was empowered to issue recovery proceedings against the directors of the company, and out of Rs. 9 Crore, only Rs. 6.62 Lakhs was directed to be distributed by the directors of the company as per the resolution plan by order of the National Company Law Tribunal, Allahabad.

Based on the Supreme Court's judgment in State Bank of India vs V. Ramakrishna and another, the bench concluded that the purpose of the IBC is to ensure that directors, who are in charge of the companies, do not escape an independent and coexistent responsibility to repay all outstanding debts.