The Allahabad High Court recently dismissed a writ petition moved against the demand notice of electricity dues amounting to Rs 9 crore issued in the name of two directors of a company that had gone into insolvency.
A division bench of Justice Sunita Agarwal and Justice Vipin Chandra Dixit held that although the defaulter company had gone into insolvency and the resolution plan had also been approved by the National Company Law Tribunal (NCLT), the liability of its directors did not stand extinguished.
“Mere approval of a resolution plan does not ipso facto absolve the director of a company of his or her liability,” the court held.
The court, therefore, upheld the powers of the Electricity Department under Clause 4.3 (f) and Clause 6.15 of the U.P. Electricity Supply Code, 2005 to proceed against the directors of the company.
The plea was filed by one of the directors of the company namely M/s Trimurti Concast Pvt ltd against the demand notice issued by Pashchimanchal Vidyut Vitran Nigam Limited (PVVNL) in his and the other director’s name.
The contention raised by the petitioner’s counsel was that once the Company went into insolvency under Section 7 of the Insolvency and Bankruptcy Code, 2016 (IBC, 2016), the outstanding electricity dues towards the defaulter company being a Corporate debtor could not be recovered from its directors.
Referring to the waiver, reliefs, and exemptions granted by the NCLT in its order, he asserted that after approval of the resolution plan, a creditor is prohibited from initiating proceeding for recovery of its claims which are not part of the resolution plan, therefore, all claims except provided in the resolution plan stood permanently extinguished.
On the other hand, the counsel for the PVVNL and the UP Power Corporation Ltd submitted that Clause 4.3(f) and Clause 6.15 of the Electricity Supply Code, 2005 clearly empower the electricity department to issue recovery proceeding against the directors.
He vehemently argued that Clause 4.3 (f)(v) clearly provides that the Directors of the company shall be liable for the electricity dues of the company.
Moreover, he apprised the court that one of the Directors of the defaulter company at the time of submitting the application form for supply of electricity had filed his affidavit along with the application form to undertake that whatever be the dues of the Company, he would always be ready and bound to deposit the same.
However, the court refrained from commenting upon that issue as the director’s personal guarantee was not in question.
Referring to a catena of Judgment of the Top Court, the division bench observed that the object of the IBC, 2016 is not to allow personal guarantors such as Directors who are in the management of the companies to escape from an independent and co-existent liability to pay off the entire outstanding debt.
In Vijay Kumar Jain vs Standard Chartered Bank (2019), it was held that the sanction of a resolution plan and finality imparted to it by Section 31 does not per se operate as a discharge of the guarantor’s liability, the division bench noted.
In view of the same, the bench held that approval of a resolution plan does not ipso facto absolve the surety/guarantor of his or her liability, which arises out of an independent contract of guarantee, and to what extent, the liability of a guarantor can be pressed into service would depend on the terms of the guarantee/contract, itself.
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