Madras High Court Judgment

W.P. No.
29845 of 2022
IN THE HIGH COURT OF JUDICATURE AT MADRAS
W.P. No.29845 of 2022
TABLE OF CONTENTS
S. No Contents Para No.

1. The Facts 2-3
2. The Arguments 4-5.2
3. Discussion and Decision:
a. Setting the stage 6.1-8
b. A Preludial Statement 9-13
c. A brief overview of the IBC and its 14.1-17
working
d. IBC & Scope for Misuse 18-20
e. Operational Creditors & Right to 21-22.2
Property
f. IBC & Neutral Tribunal 23-24
g. Discussion on the Authorities 25-26
h. The M.K. Rajagopalan Effect 27-30
i. Role of the CoC Redefined 31.1-34
j. Understanding the “Relevant
Information” & sourcing them:
i) Introductory 35.1-35.2
ii) Duty of the Suspended 36
Board of the Corporate
Debtor 37-41.3
iii) Duty of the IRP & the RP 42-45
iv) Transparency as Fairness
in Action
k. Duty of the Adjudicating Authority 46
l. Finality of the Resolution Plan & 47-49.3
the CST
m. What the Petitioner may anticipate 50-51
4. Points to Ponder 52.1-52.3
5. Conclusion 53
https://www.mhc.tn.gov.in/judis
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IN THE HIGH COURT OF JUDICATURE AT MADRAS
Reserved on : 15.09.2023
Pronounced on : 07.06.2024
CORAM: JUSTICE N.SESHASAYEE
W.P. No.29845 of 2022

and WMP.No.29233 of 2022
The National Sewing Thread Co. Ltd.,

(Post Insolvency Resolution under IBC)
Represented by its Successful Resolution Applicant
Mr.B.Venkatesan
11, Venugopala Pillai Road
Chidambaram - 608 001. ... Petitioner
Vs.
1.The Superintending Engineer

TANGEDCO
Cuddalore Electricity Distribution Circle
Capper Hills, Cuddalore - 607 001.
2.The Assistant Electrical Engineer

TANGEDCO
Anantheeswaran Koil Street
Chidambaram - 608 001. ... Respondents
PRAYER: Writ petition filed under Article 226 of the Constitution of India
for a Writ of Certiorarified Mandamus calling for the records of the
impugned demand notice dated 19.01.2022 in Lr.No.SE/CEDC/CUD/DFC/
AO/REV/ASS.No.384/2022 on the file of the respondents and quash the
same as being contrary to law and decisions of the Hon'ble Supreme Court of
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India, as such arbitrary, highhanded, illegal, without jurisdiction and direct

the respondents to forthwith provide the electricity connection as applied by
the petitioner.
For Petitioner : Mr.E.Omprakash, Senior Counsel

Assisted by Mr.Imayavaramban
for M/s.Ramalingam & Associates
For Respondents : Ms.Keerthana R.Shenoi

for Mr.V.Venkata Seshaiya
Standing Counsel for TANGEDCO
[R1 & R2]
ORDER
This petition was filed for a writ of certiorarified mandamus to quash the
demand notice of the respondents and to further direct the respondents to
provide the electricity connection.
THE FACTS:
2. The case of the petitioner is as below:
a) The petitioner herein is a public limited company, and it is also
registered under the MSME Act, 2006. It had availed financial
assistance from M/s. Indian Overseas Bank (henceforth IOB).
However, it suffered huge business loss owing to which it could not
service its loan-liability to the IOB, and as to be expected its loan
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was notified as NPA by the lender. Thereafter on 24.03.2017, the
IOB assigned the debt of the petitioner-company to M/s. Alchemist
Asset Reconstruction Company Ltd., (hereinafter referred to as
'Financial Creditor/FC).
b) The assignee of the loan, as a Financial Creditor moved the NCLT
with an application under Sec.7 of the IBC against the petitioner-
company for initiating a Corporate Insolvency Resolution Process
(henceforth CIRP). The statutorily prescribed course of action
commenced, accordingly an Interim Resolution Professional (IRP)
was appointed, Committee of Creditors (IOB) was constituted, and
it approved the resolution plan and submitted it, and on 06.12.2021
it was approved by the Adjudicating Authority, the NCLT.
c) In terms of the resolution plan, only the financial creditor of the
petitioner was partially benefited, since the value of the assets of the
petitioner was far short of the value of the liability it faced. So far as
Operational Creditors are concerned, the resolution plan directed
that they would be paid pro rata at 1% of the value of their claim.
The petitioner accordingly redeemed itself from the debt-trap it
faced.
d) While so, TANGEDCO, to which the petitioner owed arrears of

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unpaid electricity charges from June, 2019 to a tune of
Rs.32,86,061/- issued a demand notice dated 19.01.2022 for the
said sum. The petitioner had replied stating that it had already gone
through CIRP and as per the Resolution Plan approved by the
NCLT, all the outstanding dues of the company not falling within
the purview of the Resolution Plan stood extinguished. And, since
the demand of the TANGEDCO was not met, it promptly
disconnected the electricity service connection of the petitioner.
e) Thereafter, on 24.2.2022, the petitioner applied for a temporary
connection of the LT Energy. TANGEDCO, however, declined to
provide the electricity service connection on the ground that the
petitioner needs to pay the arrears of electricity consumption
charges to it.
f) Contending that the demand of arrears of electricity charges runs
counter to the spirit behind the IBC engineered Resolution Process,
the claim of the TANGEDCO itself is arbitrary and illegal, the
petitioner challenges it in this proceeding.
3. TANGEDCO has filed its counter, wherein it essentially highlighted that,
(a) for non-payment of current consumption charges, the electricity

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connection provided to the petitioner was disconnected on 08.08.2019, well
prior to the commencement of insolvency proceedings; and (b) Regulation 17
of the Electricity Supply Code has made it mandatory for an applicant for
fresh electricity service connection to pay the entire arrears of electricity
charges.
THE ARGUMENTS
4. Mr.Om Prakash, the learned senior counsel for the petitioner argued that,
for the TANGEDCO to sustain any claim against the petitioner, it should
have made its claim as an Operational Creditor during the Resolution Process
in the CIRP proceedings. It, however, did not choose to make a claim. Now,
when once the Resolution Plan is approved by the NCLT on 06.12.2021, all
the unclaimed outstanding liability of the petitioner company has
extinguished, and the petitioner starts a new innings with the score board
reading zero for none. In Ghanashyam Mishra & Sons (P) Ltd., Vs
Edelweiss Asset Reconstruction Co. Ltd. [(2021) 9 SCC 657], the Hon'ble
Supreme Court has held that unless any statutory liability which is payable by
the corporate debtor to the Central Government or State Government or to
any local authority is made part of the resolution plan, it shall stand
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extinguished, and hence, no proceedings in respect of such dues for the
period prior to the date on which the adjudicating authority grants its
approval to the resolution proposal will survive. Reliance was also placed on
the ratio in Paschimanchal Vidyut Vitran Nigam Ltd. Vs Raman Ispat
Private Limited and Others [2023 SCC OnLine SC 842], and Committee of
Creditors of Essar Steel India Limited, through authorised signatory Vs
Satish Kumar Gupta and Others [(2020) 8 SCC 531].
5.1 Per contra, representing the TANGEDCO, Mr.J.Ravindran, the
Additional Advocate General, submitted that it may be that under the scheme
of IBC, TANGEDCO might be an operational creditor, but inasmuch as
TANGEDCO's activities are governed by the Electricity Act, 2003, and the
Electricity Supply Code, it cannot forego its claim. Reliance was placed on
the ratio in State Tax Officer Vs Rainbow Papers Ltd., [2022 SCC OnLine
SC 1162] ; K.C.Ninan Vs Kerala State Electricity Board and Others, [2023
SCC OnLine SC 663 (para 117, 341)], and M/s.Empee Distilleries Limited
Vs The Superintending Engineer, Pudukottai, Electricity Distribution
Circle, Pudukottai [WP(MD) No.14198 of 2022 dated 10.11.2022].
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5.2 On the strength of the ratio in K.C.Ninan Vs Kerala State Electricity
Board and Others, [2023 SCC OnLine SC 663], the Additional Advocate
General submitted, an owner or an occupier of the premises to which the
electricity was provided is liable to pay the entire arrears, and it was not
affected by any proceedings initiated under the IBC, nor by any approval to a
resolution plan. He also submitted that the ratio in the Ghanashyam Mishra
case has been considered in State Tax Officer Vs Rainbow Papers Ltd.,
[2022 SCC OnLine SC 1162], where the Supreme Court has declared that
where the resolution plan presented before the Adjudicating Authority (the
NCLT) has ignored certain dues to the instrumentality of the State, then the
same is bad. This judgment in the Rainbow Papers case was followed by a
learned Single Judge of this Court in M/s.Empee Distilleries Limited Vs The
Superintending Engineer, Pudukottai, Electricity Distribution Circle,
Pudukottai [WP(MD) No.14198 of 2022 dated 10.11.2022].
DISCUSSION & DECISION
(a) Setting the Stage
6.1 Facts are not in controversy. Petitioner is a company and is also registered
under the MSME Act, 2006. It had fallen into a debt trap of its own creation
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which drew the petitioner before the NCLT to face a CIRP at the instance of
its only financial creditor. Necessarily, the Committee of Creditors whose
66% approval is mandatory under Sec.30(4) of the IBC for the NCLT to
consider approving any resolution plan, is constituted of a single member
financial creditor.
6.2 In view of the fact that the petitioner has been registered under the
MSME Act, Sec. 240A of the IBC enabled its existing Board to participate in
the resolution process of the CIRP, and hence it made use of the opportunity
and came up with its Resolution Plan. And, it was readily approved by the
one member CoC, and was also sanctified by the NCLT vide its Order dated
06.11.2021. The Resolution Plan as approved shows that the petitioner would
merge one of its units in Chidambaram (in Tamilnadu) with another facility it
has at Puducherry, and would sell its non-core assets to pay off its creditors –
to be understood essentially as its only financial creditor. And, the petitioner
being a MSME, the same promoters or the Board of Directors of the
petitioner continued to be in the management of its affairs, but significantly
free of all its liability, with its only financial creditor walking away with the
chunks, and the operational creditors forced to settle for the crumbs which
the IBC regime generously feed them with.

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7. The TANGEDCO, a statutory entity, a Generator cum Distribution licensee
of electricity in this state, with a claim of around Rs.32.0 lakhs, does not
figure anywhere in the scheme of this Resolution Plan, as it has not preferred
a claim before the Interim Resolution Professional pursuant to the public
notice issued at the instance of the Adjudicating Authority under the IBC
(read the same as NCLT). After all, TANGEDCO is only an Operational
Creditor within the definition of the term under Sec.5 (21) of the IBC, for
whose money and loss the IBC shows scant respect or concern. (But the
legislation is still valid). Curiously enough, the petitioner also did not
disclose its dues to TANGEDCO in its Resolution Plan.
8. TANGEDCO, very innocently demanded its dues, but the petitioner has a
prompt response to it: “We had one great holy dip in the IBC, and all our
sins are washed away. Today, we are a new born, with a clean-slate balance
sheet, with all assets and no liability. Hence, we owe TANGEDCO nothing.
And if there are any doubts, read Ghanashyam Mishra case.” And, it does
not stop there. It now insists the TANGEDCO to provide it with a new
electricity service connection but without payment of arrears of electricity
charges. TANGEDCO is plainly uninterested and its response is candid: “We

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are governed by the Electricity Act and the Supply Code, and we are not
bound to provide you, the petitioner, with a fresh electricity connection
unless our dues are paid. And, we have our powers intact to realise the
arrears as per our governing statute.”
(b) A Preludial Statement
9. Prima facie, the contentions of the petitioner sound absolutely
unconscionable. The petitioner appears to have literally negotiated with its
only financial creditor to deny its operational creditors of their dues. This
possibility disturbs the consciousness of this court and also disquiets its
conscience. However, a prima facie perception by itself may not be an ideal
material to guide the conscience of this court to a surer decision justifiable in
law. As Jerome Frank has stated several decades ago, a ‘Judge must forewarn
himself of his prejudices’, and necessarily any judicial perception that could
not be accommodated in law can only pass for the prejudice of the judge.
10. The submissions on either side display an apparent interplay of two
statutes, both seeking supremacy over the other, and the issue is entangled in
judicial understanding of the scope and extent of the IBC. If the arguments of
the petitioner are keenly observed, it appears to be on a firmer ground, since

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it is backed by the rule of commercial wisdom of the CoC as well as the
Clean Slate Theory (henceforth CST) as evolved by the Supreme Court
(which would be discussed in due course). On the pointed issue of the
entitlement of TANGEDCO to keep alive its claim against the petitioner is
concerned, it does appear that it may well be covered by the dictum in
Paschimanchal Vidyut Vitran Nigam Ltd., Vs Raman Ispat (P) Ltd., &
Others [(2023)10 SCC 60].
11.1 Justice has variable content but is in search of a constant - Justice. It
aims to find an ideal balance amidst conflicting interests, and it has been its
eternal challenge. And, it is best served when it is nurtured with a sense of
justice and fairness which occupies, or ought to occupy the judicial
consciousness of the Courts. The onus is on the Courts. It is a constitutional
obligation which this court can neither reject nor ignore. This obligation is
defined by a realization that every citizen in this country is an equal citizen
and every ounce of property one possesses in this country is precious. If right
to dignified existence in this country has to have any meaning beyond the
rhetoric that we are often fed with, then its inalienability to right to property
deserves a special recognition. The sense of justice of the Court is summoned
every time the individual right to property faces a conflict. It is here the
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interest of the operational creditors has drawn the notice of this Court and the
possibility for potential misuse of the IBC and the regime it has created has
become a source of its concern.
11.2 Pursuit to justice shall not let to be hindered by any attitude that may
find appreciation in a School of Mathematics. The existential relevance of
Courts as an institution to the citizenry of this country depends on its strength
to identify those rights in crisis within the structure of the Rule of Law which
the Constitution of this country advocates with pride, and its ability to evolve
a solution. The terrain may be plain or may be treacherous. But the Courts
should not plea helplessness and shy away from its responsibility to the
citizens of this country in evolving a just solution within the contours of our
legal system and within the rules of discipline which the Courts follow. This
Court therefore, chooses to follow the command of its conscience and to
delve deep into this issue.
12. In this endeavour, this Court is conscious that the process of evaluating
the sustainability of the defence offered by the TANGEDCO to the plea of
the petitioner, in effect invites this Court to judicially review the effect of the
resolution plan as approved by the CoC first, and by the Adjudicating

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Authority next, without disturbing the finality it had attained in the IBC turf.
Much of this Order which would unfold shortly is to ascertain the space
available to this Court to sit over the final order of the Adjudicating Authority.
13. Here it has to be stated that in Swiss Ribbons Pvt. Ltd., & another Vs
Union of India & Others [(2019) 4 SCC 17] the Supreme Court while
approving the constitutionality of the IBC, has focused more on the
legislative competency of the Parliament to enact it, and underscored it as to
why the Court should stay off from economic legislations. The case at hand,
definitely not the first one in this genre, yet it necessitates a compulsory
understanding of the scheme of the IBC one more time, and also the space
occupied by the dictum of the Supreme Court in its judgements on the topic
(to few of which reference has been generally made already). This course,
this Court considers as the convenient point for opening the discussion.
(c) A brief overview of the IBC and its working
14.1 The IBC is a statutory contrivance for consolidating all the statutes that
were hitherto in force which dealt with the issue of insolvency – be it an
individual or proprietary concern, or a partnership firm, or a registered
company, not with an eye to drive the debtors into forced liquidation, but to
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salvage them even as their creditors are paid reasonably. Not a novel idea as
the theme appears to have been borrowed or lifted from Sick Industrial
Companies (Special Provisions) Act,1985 (for convenience, SICA). The
principle aim of SICA was to investigate into the cause for the commercial
sickness of the debtor-company and to conduct a feasibility study for
devising a measure to rehabilitate the company. SICA, however, was repealed
in 2004, and one of the reasons behind this move appears to be the rampant
misuse of the moratorium provided under Sec.22. One noticeable difference
which is instantly visible on a broader comparison of SICA and the IBC is
that while SICA was debtor driven, the IBC is financial creditor driven. In
effect the soul of the IBC appears to be that which the Parliament has junked
vis-à-vis the SICA.
14.2 The IBC aims to settle the corporate creditors with minimal damage to
the existential possibilities of a corporate debtor. Surely on paper it appears
to provide possibilities of a win-win situation, something which the
draftsmen of IBC may elate about. In that sense IBC may be acclaimed as a
path breaking legislation, but it is doubtful if it has broken the path without
breaking the back of some of the stakeholders – more particularly the
Operation creditors. How secured are the operation creditors under the IBC
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regime? This requires a dispassionate understanding of the scheme of the IBC
and the judicial pronouncements on its working. They are provided below.
15. It commences with a situation where the corporate debtor (which by
definition under Sec.3(8) read with 3(7) means a company or a limited
liability partnership firm or any other incorporated entity with limited
liability but not including any financial service providers) faces an imminent
possibility of involving in an insolvency resolution process. The process
which IBC provides unfolds as below:
a) Where a corporate debtor commits a default in making payments to
its creditors, the stage will be set for invoking the IBC. Here the
creditors are classified into two broad categories: (i) Financial
Creditors; and (ii) Operational creditors. A combined reading of
Sec.5(7) and 5(8) enables a broad understanding of the term
'financial creditors' as those to whom money is owed by a corporate
debtor. Given the context of the case a specific discussion on the
term is unnecessary. An Operational creditor, on the other hand are
those to whom operational debt is owed, and in terms of the
definition provided under Sec. 5(21) of the IBC, it means those to
whom payment is due for supply of any goods and services, and,
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any dues that “arises under any law for the time being in force and
payable to the Central Government or any State Government or
any local body”. Significantly enough the definition does not
expressly include any liability payable to any public sector
companies and statutory corporations, beneath whose corporate veil
lies the public interest and the concern of the citizenry as the
principal stakeholder.
b) The IBC enables the financial creditors to initiate proceedings for
insolvency resolution under Sec.7, or by the operational creditors
under Sec.9, or by the corporate debtor itself under Sec.10 of the
IBC.
c) Once the Adjudicating Authority (read it as the NCLT) admits a
petition for initiating an insolvency resolution process, three things
happen in succession: (i) appointment of an Interim Resolution
Professional (IRP) in terms of Sec.16; (ii) issuance of a public notice
of the initiation of insolvency proceedings by the NCLT under
Sec.13 read with Sec.15, declaring moratorium on all transactions
or suits involving the corporate debtor as provided in Sec.14; and
(iii) through the said public notice inviting claims from all the
creditors of the corporate debtor within a stipulated date (Sec.15).

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d) Once an IRP is appointed, he or she replaces the Board of the
corporate debtor and the entire managerial responsibility of the
corporate debtor vests in the IRP and to this extent the powers of
the Board of directors of the corporate debtor will stand suspended
(Sec.17).
e) Under Sec.18, the IRP is required to prepare an asset and liability
statement of the corporate debtor, and this may include such claims
he may have received pursuant to the public notice issued by the
NCLT under Sec.13. Now, notwithstanding the suspension of the
Board of Directors of the corporate debtor under Sec. 17(1)(b), in
terms of Sec.19, the Board of the corporate debtor is still under a
statutory obligation to extend its assistance and co-operation to the
IRP, and is duty bound to provide all necessary information to him
or her. Indeed, on its failure to provide necessary assistance or co-
operation, the NCLT has the power to direct the suspended Board
of the corporate debtor to provide the same to the IRP.
f) The next significant responsibility of the IRP is to constitute a
Committee of Creditors (CoC) once he completes the preparation of
the asset and claims statement of the creditors of the corporate
debtor. As per Sec.21 of the IBC, only financial creditors will have
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the right to be part of the CoC, and the only circumstance when the
financial creditor or its representative may be excluded is when they
are related to the corporate debtor. The object behind this is obvious
as it intends to exclude conflict of interest and possibilities of bias,
since the CoC is vested with the exclusive authority to decide on the
resolution process as would be seen later.
g) The operational creditor will not be in the loop, and the Parliament
has taken a very conscious decision even to limit the voting right of
a financial creditor who/which may also figure as an operational
creditor only to the extent of its financial debt. [Sec.21(4)]
h) With the constitution of the CoC, the role of the IRP comes to an
end. Now the CoC will take over, and it will now appoint the
Resolution Professional (RP). He or she may be the IRP or could be
a different person and who would be appointed by the Adjudicating
Authority subjected to the approval of the Insolvency Bankruptcy
Board of India (IBBI). And, on the appointment of the RP, he
would assume charge of the affairs of the corporate debtor and is
required to continue it as a going concern, but his freedom to
manage the affairs of the corporate debtor is largely under the nose
and control of the CoC as provided in Sec.28.

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i) The RP is also required to initiate the resolution process for which
purpose he is vested the power under Sec.25(2) to invite (known as
expression of interest) resolution plan from any third parties who
might be interested in baling out a stressed company from facing
the prospects of becoming an insolvent, for which purpose he also
has the power to call for the meeting of the CoC under Sec.24. And,
anyone who fails to qualify in terms of Sec.29A cannot be a
resolution applicant.
j) The RP is then required to prepare what Sec.29 describes as an
Information Memorandum and it is required to provide all
necessary information useful for the resolution applicant (either a
third party or the financial creditor under Sec.7, or Operation
creditor under Sec.8) to formulate a resolution plan and also is
required to provide them the access to the information to the extent
Sec.29 stipulates. Subject to Sec.29 A, a resolution applicant is
required to provide a resolution plan to the RP.
k) Under Sec.30 (2) (b) (introduced vide Act 26/2019 and brought into
force on 16.08.2019) the RP is inter alia expected to ensure that the
proposal for payment to the operational creditor is not less than
what they may have obtained in a liquidation proceedings or that

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they would have obtained in the order of priority in the liquidation
proceedings as provided under Sec 53(1), whichever is higher. But
the most significant part of this activity is that the RP is required to
ensure in terms of Explanation I of Sec.30(2) that “distribution in
accordance with this clause shall be fair and reasonable to such
creditors”, which contextually mean the ‘operational creditors’.
Some small mercy for the operational creditors, or is it a
condescending care that IBC extends?
l) Under Sec.30(4) the CoC is required to approve the resolution plan
with a minimum of 66% vote in favour of the said plan. And, under
Sec.31 this resolution plan as approved by the CoC is required to be
approved by the Adjudicating Authority, the NCLT, after it satisfies
itself that the resolution plan has provisions for its effective
implementation. This is provided in the Proviso to Sec.31(1).
Necessarily it has the power to refuse approval if it is not so
satisfied.
16. The legislative intent as conveyed through the body of the IBC highlights
three aspects on the right of the operational creditors: (i) The operational
creditors has the right to initiate an insolvency proceedings; (ii) it can

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participate in the meeting of the CoC; and (iii) it is required to take whatever
the CoC grants it with the minimum assurance that it would not be less than
the minimum that they would obtain in the eventuality of the corporate debtor
going into liquidation. But their inherent right to defend its interest is
significantly denied to them as the Parliament embarked on a hitherto
unheard of legislative invention of requiring one set of creditors, the financial
creditors, to decide on the right of another set of creditors. In that sense IBC
has been truly path-breaking. But has not the Parliament unwittingly reduced
the operational creditors with lesser insurance against economic
uncertainties, to a sacrificial goat to feed the financial creditors, essentially
the banking sector, which has greater and better shock-absorbers in-built
within its structure against economic turbulences, with the RBI sitting to
audit its operational efficiency? This aspect cannot be ignored as the
TANGEDCO’s grievance will find a slot here.
17. Another striking feature of the IBC which is relevant to the context of this
case is that, while a corporate debtor may initiate an insolvency proceeding,
in the final leg, it cannot be a resolution applicant and participate in the
resolution process except as an observer in the meetings of the CoC. As
earlier indicated the solitary exception is a MSME corporate debtor which in

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terms of Sec.240A, does not suffer any disqualification under Sec.29A and
therefore a MSME corporate debtor can be a resolution applicant. But the
statutory concession extended to a MSME stops here. In other words, the
scheme of resolution process is the same even if MSME were a resolution
applicant.
(d) IBC & Scope for Misuse
18. Is the petitioner liable to pay the arrears of electricity charges which has
arisen prior to the commencement of the insolvency proceedings, and will it
survive after the successful completion of the resolution process? In trying to
shield itself behind the CST, is it on an ambitious overdrive to out manoeuvre
the quest for fairness in judicial action?
19. It now throws open a need to understand (i) whether IBC enables a
possible collusion or a collaboration between the corporate debtor, financial
creditors, and the one who is supposed to be equidistant to both – the IRP and
the RP for outsmarting the interests of the operational creditors; and (ii)
whether the CST is a panacea for the corporate ills (or is it evils?) of a
corporate debtor. In short, the question would be whether the objective
behind the IBC could be hijacked by private motives of those in whom the
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IBC has invested its trust - the trust the Parliament has invested; the trust the
people of this country have invested. And if it could be, does it not impose a
responsibility on the legal system of this country of which the courts are the
sentinel on the qui vive to step in to shape up a just and fair outcome within
the framework of law?
20. Having understood the scheme of the IBC, it is now time to navigate
through the authoritative pronouncements of the Hon’ble Supreme Court. It is
neither about the creation of two broad categories of creditors – the financial
creditors and the operational creditors by the IBC, nor about the differential
criterion which IBC has employed to define the character of both these
categories of creditors, whose alleged inequality of status the Supreme Court
has rejected on its way to uphold the constitutionality of the IBC in the Swiss
Ribbons Case [(2019) 4 SCC 17]. It is about the protection and the assurance
the IBC offers to the operational creditors and the role of the Adjudicating
Authority. This exercise is both inevitable and mandatory since this Court has
to ensure that the petitioner, with or without the collaboration of its financial
creditor, has not been converted the IBC into mechanism to deny the
respondent of their dues by a shrewd manipulation of the process it provides.
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(e) Operational Creditors & Right to Property
21. In a free country where every individual citizen is endowed with the
fundamental right to do any lawful business under Article 19(1)(g) of the
Constitution, all those who engage in different businesses are free to make
their commercial decisions. Some succeed and some fail, and hence loss in
business is an inevitable consequence attached to the vagaries of commerce.
When misfortune strikes like a hurricane it lands some businesses in
bankruptcy. And, every time a debtor loses, his or its creditors also lose.
22.1 The object of the IBC evidently is to minimize the loss of various
categories of creditors even as it attempts to salvage the corporate debtor
from its commercial extinction. Appreciable it is, but it may not be let to
gloss over the fact that every claim of the operational creditors involves a
right to their property under Article 300 A of the Constitution, which the
Supreme Court now reads it as a facet of human right and as integral to the
right to life under Article 21 of the Constitution vide the ratio in Lalaram Vs
Jaipur Development Authority [(2016) 11 SCC 31] read alongside the ratio
in Tukaram Kana Joshi Vs MIDC [(2013)1 SCC 353], and approved in
Vidya Devi Vs State of H.P., [(2020)2 SCC 569)]. This is the major premise.
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22.2 Every right to property has its adjunct rights shadowing it. Kolkata
Municipal Corporation Vs Bimal Kumar Shah [2024 SCC OnLine SC 968]
“26……. The binary reading of the constitutional right to property

must give way to more meaningful renditions, where the larger
right to property is seen as comprising intersecting sub-rights,
each with a distinct character but interconnected to constitute the
whole. These sub-rights weave themselves into each other, and as a
consequence, State action or the legislation that results in the
deprivation of private property must be measured against this
constitutional net as a whole, and not just one or many of its
strands.”
This necessarily includes the right to enforce or secure the right to property,
which we commonly understand as right of action. Ordinarily, a person with
a claim has the right of action to enforce the claim before a neutral arbiter, be
it the Court or a tribunal, both of which are positioned equidistantly from
opposing claims. This is the minor premise.
(f) IBC & Neutral Tribunal
23. It could now be derived that where a substantive right to property is in
peril, the right of action before a neutral tribunal springs into action for
obtaining justice in the cause. This is fundamental to our Constitutional
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jurisprudence. In Union of India Vs Madras Bar Association [(2010)11 SCC
1], a Constitutional Bench of the Supreme Court has held:
“101. Independent judicial tribunals for determination of the

rights of citizens, and for adjudication of the disputes and
complaints of the citizens, is a necessary concomitant of the
rule of law. The rule of law has several facets, one of which is
that disputes of citizens will be decided by Judges who are
independent and impartial; and that disputes as to legality of
acts of the Government will be decided by Judges who are
independent of the executive. Another facet of the rule of law is
equality before law. The essence of the equality is that it must
be capable of being enforced and adjudicated by an
independent judicial forum. Judicial independence and
separation of judicial power from the executive are part of the
common law traditions implicit in a Constitution like ours
which is based on the Westminster model.
102. The fundamental right to equality before law and equal

protection of laws guaranteed by Article 14 of the
Constitution, clearly includes a right to have the person's
rights, adjudicated by a forum which exercises judicial power
in an impartial and independent manner, consistent with the
recognised principles of adjudication. Therefore wherever
access to courts to enforce such rights is sought to be
abridged, altered, modified or substituted by directing him to
approach an alternative forum, such legislative Act is open to
challenge if it violates the right to adjudication by an
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independent forum. Therefore, though the challenge by MBA

is on the ground of violation of principles forming part of the
basic structure, they are relatable to one or more of the
express provisions of the Constitution which gave rise to such
principles. Though the validity of the provisions of a
legislative Act cannot be challenged on the ground it violates
the basic structure of the Constitution, it can be challenged as
violative of constitutional provisions which enshrine the
principles of the rule of law, separation of powers and
independence of the judiciary.”
Indeed, long before the above pronouncement in the Madras Bar
Association case, the tone for this idea was set in Article 10 of the Universal
Declaration of Human Rights, 1948 which reads:
“10. Everyone is entitled to in full equality to a fair and public

hearing by an independent and impartial tribunal, in the
determination of his rights and obligations and of any
criminal charge against him.”
It will be of interest to record that Article 6(1) of the European Convention
on Human Rights, 1950 has adopted the same, and it reads:
“6.1 In the determination of his civil rights and obligations or

of any criminal charge against him, everyone is entitled to a
fair and public hearing within a reasonable time by an
independent and impartial tribunal established by law.”
Inasmuch as India is a signatory to UDHR, there is a binding obligation on
the Parliament of this country to provide a neutral forum for the operational
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creditors to present their claim.
24. However, the scheme of IBC provides for a two-tier mechanism for
approval of a resolution plan – first by the CoC and next by the Adjudicating
Authority. Now, unless the Adjudicating Authority is treated as a neutral
tribunal for the operational creditors to defend and secure its right to property
which they have in their claims against any perceived unfair and inequitable
treatment meted out to them by the CoC, even if the CoC has acted bonafide,
there is a lurking danger of IBC straying into the zone of unconstitutionality
for breaching the dictum of the Constitution Bench in the Madras bar
Association case.
(g) Discussion on the Authorities
25. What then is the role which the Adjudicating Authority is expected to
play? This issue, it must be said, is caught in the storm of court room debates,
and there is a perception that it has left the role of the Adjudicating Authority
on a plane of ambivalence, and it may have to be steered to clarity. And, it
may not be discussed in isolation, as its understanding was influenced by the
doctrine of commercial wisdom which the Supreme Court has developed in
the Sashidar Case [(2019) 12 SCC 150] and subsequently reinforced vide
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ratio in the Essar Steel case [(2020)8 SCC 531] and the Ghanashyam
Mishra case. An understanding about them will be useful to understand the
contours of the CST - the Clean Slate Theory. The discussion of these
authorities now opens.
25.1 In Sashidhar case, the Supreme Court was faced with a situation where
it was required to decide on the validity of the resolution plan as approved by
the majority of the financial creditors of the CoC but with their combined
vote-percentage falling short of the percentage which the IBC had fixed for
approving a resolution plan and the authority of the Adjudicating Authority
to interfere with it, since the latter had rejected the resolution plan. It is in the
course of its judgment, the two Judges bench of the Supreme Court has held:
“52. The legislature has not endowed the Adjudicating

Authority (NCLT) with the jurisdiction or authority to analyse
or evaluate the commercial decision of CoC much less to
enquire into the justness of the rejection of the resolution plan
by the dissenting financial creditors……. Besides, the
commercial wisdom of CoC has been given paramount status
without any judicial intervention, for ensuring completion of
the stated processes within the time lines prescribed by the I &
B Code. There is an intrinsic assumption that financial
creditors are fully informed about the viability of the corporate
debtor and the feasibility of the proposed resolution plan. They
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act on the basis of thorough examination of the proposed

resolution plan and assessment made by their team of experts.
The opinion on the subject matter expressed by them after due
deliberations in CoC meetings through voting, as per voting
shares, is a collective business decision. The legislature,
consciously, has not provided any ground to challenge the
“commercial wisdom” of the individual financial creditors or
their collective decision before the adjudicating authority.
That is made non justiciable”.
Thus was born the rule of commercial wisdom of the CoC. If the ratio in this
case is analysed carefully, the question before the Court has little to do with
the rights of the operational creditors or the interest that they are entitled to,
to have them protected through a neutral judicial forum.
25.2(a) However, in the Essar Steeel case [(2020)8 SCC 531], a three Judges
bench of the Supreme Court had expanded the scope of the doctrine of
commercial wisdom of the CoC and telescoped it into a situation to undo the
effect of the interference which the Appellate Authority had when it brought
in its perception of equitability and fairness vis-a-vis the approval granted by
the Adjudicating Authority to the resolution plan placed before the latter. It
may be stated in that case, the CoC constituted sub-committee of creditors
(which it named as the core-committee of creditors) which engaged with the
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resolution applicant, and tweaked the original resolution plan which was later
came to be accepted by the majority of the financial creditors in the CoC. In
the process, the CoC voted out the financial creditor which initiated the CIRP
and provided nothing significant for operational creditors. This resolution
plan found favour with the Adjudicating Authority but not with the Appellate
Authority. The Appellate Authority rejected the resolution plan on two
scores: (i) that the Code does not provide for delegation of responsibility by
the CoC to a sub-committee; and (ii) that there is no equitable treatment
given to the operational creditors.
25.2(b) When this matter reached the Supreme Court, it inter alia entertained
three significant questions of contextual relevance for discussion. They are,
(i) whether the Code enables the constitution of a sub-committee by the CoC;
(ii) whether the Code envisages identical treatment to different classes of
creditors; and (iii) whether the commercial decision of the CoC can be
subjected to judicial review. In its decision, the Supreme Court approved the
constitution of the core committee and held that inasmuch IBC has employed
differential criteria for defining both the financial creditors and the operating
creditors they cannot be equated for identical treatment, and these findings
led the Supreme Court to emphasis that the commercial wisdom of the CoC
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cannot be interfered with by the Adjudicating Authority. It states:
“ 67. …Thus, it is clear that the limited judicial review

available, which can in no circumstance trespass upon a
business decision of the majority of the Committee of Creditors,
has to be within the four corners of Section 30(2) of the Code,
insofar as the Adjudicating Authority is concerned, and Section
32 read with Section 61(3) of the Code, insofar as the Appellate
Tribunal is concerned”
As a byproduct of this judicial thinking, the Clean Slate Theory made its slow
and subtle emergence in paragraph 107 of the judgment, when the Supreme
Court was dealing with an ancillary issue of extinguishment of guarantee of
the promotors of the corporate debtor on the approval of the resolution plan.
The Supreme Court states:
“ 107. … A successful resolution applicant cannot suddenly be

faced with “undecided” claims after the resolution plan
submitted by him has been accepted as this would amount to a
hydra head popping up which would throw into uncertainty
amounts payable by a prospective resolution applicant who
would successfully take over the business of the corporate
debtor. All claims must be submitted to and decided by the
resolution professional so that a prospective resolution
applicant knows exactly what has to be paid in order that it
may then take over and run the business of the corporate
debtor. This the successful resolution applicant does on a fresh
slate, as has been pointed out by us hereinabove.”
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25.3(a). The ratio laid down in the Essar Steel judgment was followed by
another three-Judge bench of the Supreme Court in the case of Ghanashyam
Mishra and Sons Private Limited Vs Edelweiss Asset Reconstruction
Company Limited [(2021) 9 SCC 657]. In the said case, the Supreme Court
dealt with a batch of appeals wherein the statutory authority attempted to
recover the statutory dues from the corporate debtor after a resolution plan
had been approved. In the lead case, M/s Orissa Manganese & Minerals Ltd.
went through CIRP. There were three resolution applicants who inter alia
included Ghanashyam Mishra & Sons Private Ltd., and a certain M/s
Edelweiss Asset Reconstruction Company Ltd. The plan of Ghanashyam
Mishra was approved by the CoC and the plan of Edelweiss was not even
admitted by the Resolution professional. Edelweiss challenged the non-
admission of its plan before the NCLT. Alongside, the workmen of the
corporate debtor also challenged the resolution plan for not making any
provision for the payment of their salary and statutory dues. The NCLT
rejected both these applications. In appeal, the NCLAT upheld the rejection
of Edelweiss’s application, but allowed it to enforce the bank guarantee
issued by the corporate debtor in an independent proceeding after the expiry
of moratorium. It also allowed the workmen to realize their salary and
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statutory dues through independent proceedings in the civil courts. In effect
the appellate authority had kept alive the dues of the Edelweiss and the
workmen despite the approval accorded to the resolution plan. In other cases,
the statutory authorities had made a valiant attempt to recover the statutory
dues but after the approval of a resolution plan as it did not provide for the
payment of such dues.
25.3(b) The issues which confronted the Supreme court are: (i) whether the
resolution plan approved by the Adjudicating Authority under Section 31(1)
of the Code is binding on the Central Government, State Government, and
local authorities; and (ii) whether the Central Government, State
Government, and local authorities have any locus standi to maintain any
action for the recovery for statutory dues after the resolution plan for a
corporate concern has been approved by the Adjudicating Authority?
25.3(c) After placing reliance on the rule of commercial wisdom of the CoC
developed in K. Sashidhar case and the Essar Steel case and placing
reliance on Sec.238 of the IBC which has granted supremacy to the
provisions of the IBC to override all the other statutes that are inconsistent
with them, the Court held that even before amendment of Sec.31(1) (made
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vide Act 26/2019 and before the decision in the Essar Steel case) which was
to provide the foundation for the Clean Slate Theory to be developed, the
statutory intent favoured the extinguishment of those dues owed to the
statutory authorities that were not specifically included in the resolution plan.
And the CST has been introduced as a reason to explain the legislative intent
behind freezing all the claims once the resolution plan is approved.
Accordingly, when once the resolution plan is approved, all the statutory
dues owed to the Central Government, State Government, and Local
Authorities, not claimed and included in the resolution plan, would stand
extinguished.
25.3(d) The Court also recognised the limited power of review vested in the
Adjudicating Authority to satisfy himself that the resolution plan conforms to
Sec.30(2) of the IBC.
26. These authorities of the Supreme Court are now followed by four
judgements of the Supreme Court delivered by four different two judges
benches. They are: State Tax Officer Vs Rainbow Papers Ltd., [(2023) 9
SCC 545], Paschimmanchal Vidyut Vitran Nigam Ltd., Vs Raman Ispat
Pvt. Ltd., & others [(2023) 10 SCC 60] and Sanjay Kumar Agarwal Vs State
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Tax Officer & another [(2024) 2 SCC 362] and M.K.Rajagopalan Vs
Dr.Periasamy Palani Gounder & another [(2024) 1 SCC 42]. They are now
considered:
a) In the Rainbow Papers case, the facts that visited the Supreme
Court was whether the statutory dues which was being litigated
between the statutory authority and the corporate debtor and was
pending even before the initiation of the CIRP against the corporate
debtor is saved when the resolution plan that came to be approved
by the CoC does not disclose the statutory dues. The RP defended it
on the ground that the statutory authorities did not make a claim
pursuant to the public notice. The Court held that the resolution
plan is bad in law since the Adjudicating Authority did not ensure
that all operational creditors are paid in terms of Sec.30(2) of the
IBC. The Court also added that the statutory authority need not
prefer a claim as contended by the RP, since this was disclosed in
the books of accounts of the corporate debtor. In other words, the
decision of the Supreme Court was set to the facts of that case, but
more significantly it recognised the fact that the Adjudicating
Authority is not a mere rubber stamp for approving whatever
resolution plan placed before it while exercising its jurisdiction

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under Sec.31 of the IBC.
b) In the Paschimanchal Vidyut Vitran case, the claim relates to the
electricity dues of the corporate debtor for realising which the
electricity distribution licensee had approached the Tahasildar and
attached the property of the corporate debtor, and during the
liquidation proceedings upon the failure of the resolution process,
the NCLT would require the Tahasildar to vacate the attachment
over the property of the corporate debtor to enable the liquidation of
assets of the corporate debtor, and this order came to be challenged
and ultimately landed before the Supreme Court. Before the Court,
it was argued by the electricity distribution licensee that it was a
secured statutory creditor and as it was not included in the
resolution plan, it was entitled to the advantage of the ratio in
Rainbow Papers case. And being a secured creditor, even in
liquidation proceedings, it was entitled to priority under Sec.53 of
the Code. Rejecting the said contention the Supreme Court held that
only those dues which are transferred to the consolidated fund of
the State are entitled to be termed as statutory dues and hence the
electricity dues are not statutory dues and hence the distribution
licensee was not entitled to the priority in the waterfall mechanism

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provided under Sec.53. It also held that at any rate in terms of
Sec.238, the provisions of IBC will prevail over the Electricity Act.
And, in its judgement the Supreme Court has distinguished the
Rainbow Papers case on the ground that the latter mentioned case
did not take into account the water fall mechanism provided under
Sec.53. This case however, neither touches upon the doctrine of
commercial wisdom of the CoC or the CST nor on the role of the
Adjudicating Authority under Sec.31.
c) What follows next is the M.K.Rajagoplan case. In this case the
Court has considerably watered down the concept of the
commercial wisdom of the CoC when it held that commercial
wisdom of the CoC will have supremacy only when it is formed on
the basis of complete disclosure of information. It reads: (Per
Dinesh Maheswari J):
“160: As noticed hereinbefore, commercial wisdom of CoC

is given such a status of primacy that the same is
considered rather a matter non-justiciable in any
adjudicatory process, be it by the adjudicating authority or
even by this Court. However, the commercial wisdom of
CoC means a considered decision taken by CoC with
reference to the commercial interests and the interest of
revival of the corporate debtor and maximisation of value
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of its assets. This wisdom is not a matter of rhetoric but is

denoting a well-considered decision by the protagonist of
CIRP i.e. CoC. As observed by this Court in K. Sashidhar
[K. Sashidhar v. Indian Overseas Bank, (2019) 12 SCC 150
: (2019) 4 SCC (Civ) 222] , the financial creditors forming
CoC “act on the basis of thorough examination of the
proposed resolution plan and assessment made by their
team of experts. The opinion on the subject-matter
expressed by them after due deliberations in CoC meetings
through voting, as per voting shares, is a collective
business decision.” This Court also observed in K.
Sashidhar [K. Sashidhar v. Indian Overseas Bank, (2019)
12 SCC 150 : (2019) 4 SCC (Civ) 222] that “[t]here is an
intrinsic assumption that financial creditors are fully
informed about the viability of the corporate debtor and
feasibility of the proposed resolution plan.
161. These observations read with the observations in

Essar Steel [Essar Steel India Ltd. (CoC) v. Satish Kumar
Gupta, (2020) 8 SCC 531 : (2021) 2 SCC (Civ) 443] with
reference to the reasons stated in the Report of Bankruptcy
Law Reforms Committee of November 2015, make it clear
that commercial wisdom of CoC is assigned primacy in
CIRP for it represents collective business decision, which is
arrived at after thorough examination of the proposed
resolution plan and assessment made with involvement of
experts by the body of persons who are most vitally
interested in rapid and efficient decision making. It follows
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as a necessary corollary that to be worth its name, the

commercial wisdom of CoC would come into existence
and operation only when all the relevant information is
available before it and is duly deliberated upon by all its
members, who have direct and substantial interest in the
survival of corporate debtor and in the entire CIRP.”
d) Next in the line of authorities is the dictum in Sanjay Kumar
Agarwal case [(2024) 2 SCC 362]. In the batch of cases before the
Supreme Court, the Court was required to review the dictum in the
Rainbow Papers case based on the observations made in
Paschimanchal Vidyut Vitran case. The Court however, refused to
review and affirmed the view in the Rainbow Papers case vis-a-vis
the role of the Adjudicating Authority as declared in that case.
(h) The M.K.Rajagopalan Effect
27. An analysis of the aforesaid authorities reveals that though the
commercial wisdom of the CoC is usually placed on a golden pedestal, too
highly to be touched by the Adjudicating Authority (as propounded in the
judgments of K. Sashidhar, Essar Steel, Ghanashyam Mishra), the great run
it had was cut short till the sanctity attributed to it was qualified in the
M.K.Rajagopalan case.
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28.1 The ‘commercial wisdom of CoC’ is not a label that the CoC may
conveniently paste on a resolution plan and market it to override all other
considerations. Nor the dominant or the exclusive role which the CoC enjoys
within the scheme of the IBC for giving its approval to a resolution plan
places it beyond the judicial reach. Commercial wisdom of the CoC, strict
senso, may be understood as a knowledge based psychological factor with a
subtle blending of intuition of a group of self interested creditors. Until the
Rainbow Papers case, it was not adequately brought to focus that unless the
commercial wisdom of the CoC in approving a resolution plan conforms to
the requirements of Sec.30(2), it may not pass the scrutiny of the
Adjudicating Authority under Sec.31, even though the Essar Steel case has
not overlooked this aspect. If Sec.30(2) is scanned for its nature, it imposes
restriction on the freedom of the CoC to decide the way their collective
wisdom may tempt them to decide, by casting a duty on them – to care for the
operational creditors. This aspect will be specifically discussed later.
28.2 Therefore, to reduce an understanding of the phrase ‘commercial
wisdom of the CoC’ – a coinage of the Supreme Court, as a synonym to the
collective freedom of the CoC sans the duty which Sec.30(2) imposes will be
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a grand misconception. The Rajagopalan's case insistence to the CoC that its
wisdom shall not selectively operate on limited information has ushered in
the much needed responsibility to the thought process of the CoC. The rule of
commercial wisdom of the CoC should now satisfy the test that in exercising
it CoC should help itself with optimum inputs – ‘of all the relevant
information’. And, they necessarily include those facts which are essential for
the CoC to decide not only for the financial creditors, but also for the
operational creditors. Thus through the Rajagopalan’s case the Supreme
Court has brought in greater clarity and balance not just to the understanding
of the expression ‘commercial wisdom of the CoC’, but also to the
marketability of the concept.
29. An inevitable corollary to the dilution of the supremacy of the
commercial wisdom doctrine leaves its imprint on the ‘clean slate theory’.
CST no more springs as an automatic consequence of an approval which an
Adjudicating Authority might accord to a resolution plan, but depends on the
quality of the resolution plan to which assent has been accorded. The
resolution plan should now satisfy that it has passed the scrutiny of the CoC
on complete disclosure of all relevant information. CST ceases to be a
password for those who are keen to manipulate the scheme of IBC to the
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disadvantage of any of the other stakeholders, more significantly, the
operational creditors.
30. It could now be derived that any understanding that the role of the
Adjudicating Authority as a mere counter-signatory to the approved plan of
the CoC will be misconceived as it has the authority to reject any resolution
plan, though approved by the CoC and apparently satisfies the requirements
of Sec.30(2), if such approval of CoC is obtained on the basis of half
disclosed and hence half-baked information.
(i) Role of the CoC Redefined
31.1 While the Rajagopalan dictum lays emphasis on the quality of
information that ought to pass the scrutiny of the CoC, there is a need to
bring in certain clarity to the duty of the CoC to the operational creditors. It
has become necessary in the context of the misgivings which are entertained
based on the dictum of the Essar Steel case [(2020)8 SCC 531] where the
Supreme Court (at paragraph 146), has held that there is no fiduciary
relationship between the CoC and the operational creditors, as if the Court
with a backswing of its hand has rejected the need of the CoC to be just, fair
and equitable to the operational creditors. What apparently is missed is the

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Explanation I to Sec.30(2) which creates a statutory obligation on the CoC to
be just, fair and equitable in dealing with the rights of the operational
creditors. In the opinion of this Court the declaration of the Supreme Court in
the Essar Steel case on the absence of a fiduciary relationship between the
CoC and operational creditors does not operate to undermine the effect of
Explanation I to Sec.30(2). It can be explained.
31.2 There cannot be a dispute that there exists no fiduciary relationship
between the CoC and the operational creditors, since for a fiduciary
relationship to emerge between two persons or entities, there ought to be in
existence an equation where they either share a mutual relationship in
absolute confidence, or at least one investing all its confidence on the other.
Now, given the fact that an operational creditor is as much a creditor as the
financial creditor, and since an operational creditor’s value for its money is
no inferior to that of the financial creditors’ (as they constitute right to
property in their respective hands), and since both are competing to secure its
right to property from the same source, it is inconceivable an operational
creditor would have wasted its confidence by investing it on its competitor –
read it as the financial creditor, or would have voluntarily outsourced its right
to decide on what it may be interested in obtaining from his or its debtor by

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forsaking its own commercial wisdom. The IBC has however, placed the
interest of the operational creditors on the lap of the CoC and authorized the
latter to decide what the operational creditor might get.
31.3 Jurisprudentially, if anyone is either vested with the duty to protect the
interest of another, or occupies a position where protecting another’s interest
becomes inevitable and inescapable, then such person is stated to hold the
position of a trustee for the one whose interests he is required to protect. This
now provides the jurisprudential basis for Explanation I to Sec.30(2) of the
IBC. If it is not so understood, then for the purposes of Sec.30(2)(b), the role
of the CoC vis-à-vis the operational creditor will be in a jurisprudential
vacuum, which will be an anathema to our understanding of jural
relationships within our legal system. It therefore follows that the Essar Steel
case pronouncement cannot hinder the respect which Explanation I to
Sec.30(2) imposes on the CoC to be just, fair and equitable to the operational
creditors.
31.4 There is another reason to fortify the same conclusion. If the
considerable hype created around the expression ‘commercial wisdom of the
CoC’ is kept aside, plainly, can the commercial wisdom of the CoC go
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beyond taking care of its own interests? Let it be illustrated. Suppose both
the corporate debtor and an operational creditor had borrowed from the same
financial creditor. While applying its mind with utmost fairness to the
resolution plan made available before it, if the CoC by a majority of 66% or
more approves payment of only 10% to an operational creditor, will the same
financial creditor, while demanding the loan repayment from the operational
creditor grant the latter a rebate of 90% on its loan liability? The answer is
an obvious no, for it will be incongruent to its commercial wisdom since a
financial creditor is not doing any charity, nor is expected to be charitable in
its business. Therefore, the commercial wisdom of the CoC can never extend
to the extent of protecting the interest of the operational creditor. It is like
expecting a lion to share a slice of his catch with a lesser predator when we
all know that it is not even known to share its meal with its own pride.
Therefore, unless one understands the role of the CoC for the purposes of
Sec.30(2)(b) as a trustee of the operational creditor, fairness of its action
cannot be exacted from it in terms of Explanation I to Sec.30(2).
31.5. Now, even if Explanation I to Sec.30(2) is not there in the statute, as
long as the CoC functions as the statutory trustee for the operational
creditors, its duty to be fair and equitable cannot be forsaken. If viewed

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differently, where will the impetus for the operational creditors be to initiate
an insolvency proceeding against the corporate debtor under Sec.9 if they are
not assured of a fair and equitable treatment? Neither logic, nor life’s
experience will ever support this proposition.
32. This now necessitates that the plan approved by the CoC should be (a)
based on complete disclosure of information; (b) that its treatment of the
interest of the operational creditor must be just, fair and equitable; and (c)
that its allocation for the operational creditors is not less than that which the
operational creditors might have obtained in a liquidation proceedings of the
corporate debtor.
33. It could be now derived that any resolution plan, even though approved
by the Adjudicating Authority yet if it does not satisfy the triple criteria as
enunciated in paragraph 32 above, there will be difficulty in attaching finality
to it.
34. Therefore the comfort zone which the petitioner has created for itself on
the bed of the Ganshyam Misra dictum may not provide the kind of coziness
which it expects it to provide.

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(j) Understanding the “Relevant Information” & sourcing them
(i) Introductory
35.1 CoC’s role having been defined, the focus should now shifts to the
information which the IRP or the RP is required to make available to the
CoC. This is critical to the interests of the operational creditors and integral
to the nature of duty cast on the CoC under Sec.30(2)(b). Here there are two
sets of creditors: (a) Those who are disclosed in the resolution process, and
(b) those who are not disclosed. The challenge is always in negotiating the
claim of the undisclosed creditors.
35.2 Hitherto, CST was lavishly used to reject the claim of the undisclosed
creditors on the ground that he, who had not responded with his claim
pursuant to the public notice under Sec.13 and 15 about the initiation of the
insolvency proceedings against the corporate debtor might have to
necessarily forfeit his right. This view overlooks two aspects:
a) The right to a claim of the operational creditors, whose loss to them
will affect their commercial existence and their right to engage in
business under Article 19(1)(g) and the right to life of the promotors
and the workmen associated with the operational creditors, an aspect

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which did not obtain necessary occasion for an adequate consideration
of the Supreme Court. Can it be lost to them merely because they have
not responded to a public notice, the publication of which many would
not be tracking on a daily basis?
b) Given the duty of the IRP and RP to collect and collate all relevant
information, which necessarily include such information which the
CoC would require in terms of the dictum in the Rajagopalan case for
discharging its duty to the operational creditor, should the failure of the
IRP and the RP to gather such information which, they exercising due
diligence could have collected, be given a discount?
This is now discussed in greater detail. To remind, the respondent herein was
an undisclosed operational creditor (no matter whether it is statutory or not)
in the resolution process, and its claim is now hanging perilously from the
cliff hanger called the CST.
(ii) Duty of the Suspended Board of the CD
36 The first aspect which now concerns the court is the duty of the suspended
board of the corporate debtor. When an IRP is appointed, he replaces the
Board of the corporate debtor, but under Sec.19, the suspended Board of the
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W.P. No.29845 of 2022
corporate debtor is still under a statutory obligation to assist and cooperate
with the IRP. Contextually, the expression to 'extend all assistance and
cooperation' does not and cannot imply coffee with the IRP, but a subtle way
of communicating the legislative intent that the suspended Board shall share
all the information which will be useful for the IRP to prepare its assets and
liability statement of the corporate debtor. To state it differently, Sec.19 casts
a duty to make full and complete disclosure of all the assets and liabilities of
the corporate debtor by its suspended Board. Evidently, the Parliament’s
choice of expression is not happy, but if the expressions that it has used is not
interpreted as above, then it would inflict injury on the rights of the creditors
and that will derail the objectives of the IBC from its intended course.
(iii) Duty of the IRP & the RP
37. Under the scheme of the IBC, IRP and RP have been enjoined with the
statutory duty to prepare the statement of assets and liabilities of the
corporate debtor at the preliminary stage of the insolvency proceedings and
an Information Memorandum at the final leg of the resolution process, as the
case may be. They are but statutory offices temporarily created for each
particular case from among the freelancing professionals, sponsored by
registered agencies and approved by the IBBI, with no mechanism to

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ascertain their professional integrity and ethical fidelity beforehand. Still
their role is central to the resolution process, and the commercial wisdom of
the CoC of the M.K.Rajagopalan dictum variety depends chiefly on the
quality of the information they provide.
38. It now shifts the spotlight to the Information Memorandum which the RP
prepares under Sec.29 of the IBC. The Information Memorandum is critical
not only for the CoC but is also for the resolution applicant since it forms the
basis for the resolution plan. It therefore, follows that the information so
collected and collated shall be a complete disclosure inter alia of all the
liabilities of the corporate debtor, which in turn will facilitate the application
of the clean slate theory to secure the interest of a resolution applicant.
Regulation 36 of the IBBI (Insolvency Resolution Process for Corporate
Persons) Regulations, 2016, details the kind of information which the
Memorandum shall contain, and the prominent among them is the list of
creditors.
39. What are the possible sources of information to which the Resolution
Professional may lay his hands for preparing the Information Memorandum?
Very obviously, the blue print will be the statement which the IRP is required
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to prepare under Sec.18. This is the first ever statement prepared in the
journey of the insolvency proceedings.
40. The next point is how to ascertain the outstanding liabilities of a
corporate debtor? Here, neither the IRP nor the RP (in cases where both are
different) are blindfolded to travel in a pitch-dark alley but are expected to
exercise utmost diligence in accessing every material to which he may lay his
hands on as a trained professional.
41.1 Moving further, while ascertaining the list of creditors of the corporate
debtor, the IRP or RP may act on the information shared by the suspended
Board of the corporate debtor, his own reading of the previous financial
statements of the corporate debtor, and also the claims preferred pursuant to
the public notice issued by the Adjudicating Authority under Sec.13 read
with Sec.15. It may be stated here that merely because a public notice is
issued about the admission of an insolvency proceeding against a corporate
debtor in couple of newspapers, it cannot be presumed that every creditor, be
it operational or financial, will readily read it. And to re-emphasise, the
working of the IBC should not ignore or overlook the fact a claim to money
of the creditors is their Constitutionally protected right to property under

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Art.300A, and hence it cannot be destroyed merely because the creditors have
not preferred any claims pursuant to public notice. Seen in the context, a
public notice is only a mode for collecting information to aid in the
preparation of the data base of the creditors of a corporate debtor, and not the
only mode.
41.2. For instance is it difficult for an IRP or a RP to enquire whether the
building where the corporate debtor functions or has its factory unit is a
rented premises or owned by it, and if it is rented premises whether there are
rental arrears, or if there are any litigations for rental arrears. It only requires
sheer commonsense. (But sadly, at the field level even this is not seen
effectively done by many RPs and the IRPs, who claim themselves to be
trained professionals). Similarly, will it be difficult for the IRP or the RP to
hold a meeting with the suppliers of goods and services to the corporate
debtor to the extent their names are disclosed in the books of accounts? For
this purpose is it not necessary that he holds discussions with the auditors of
the corporate debtor? Similarly, as regards the issue of statutory liability of
any corporate debtor, is it not possible for the IRP or the RP to ascertain: (a)
if there are immovable properties, if the property tax payable to the local
body and the land tax or the kist payable to the Government have been paid;
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(b) if there are workers, if ESI contributions and EPF remittances have been
made; (c) if there is electricity connection, whether electricity charges have
been paid; (d) if any corporate tax is liable to be paid, if the same had been
paid. For obtaining these information, should the IRP or the RP require to be
graduated from the Harvard Business School or our own IIMs, or possess a
Sherlockian intelligence? All it requires is simple curiosity of a common man
of ordinary prudence. Hence, if the IRP or the RP still fails even to ascertain
them, then it will be a shameless exhibition of their lack of professionalism
and clear demonstration of lack of due diligence in preparing their financial
statement or the Information memorandum, as the case may be.
41.3 It is time the IRPs and the RPs realized that their office is not an office
of comfort, but an onerous one for it is on their diligence and integrity the
successful working of the IBC rests. They should not forget that their claim
figures first when the resolution plan goes for a shower under the waterfall.
Sadly, not many seem to have realized the significance of their duty, and how
their abject callousness drowns the operational creditors into poverty, more
particularly the MSME operational creditors. Indeed, it is common
experience of most courts in this country that they do not even respond to the
summons issued by the court in any suits or appeals or other proceedings

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W.P. No.29845 of 2022
involving a corporate debtor. It may be that there may be a moratorium on
litigations during the pendency of the resolution process, but it requires to be
emphasized that every litigation can give the IRP or the RP some information
about the assets and liabilities of the corporate debtor. It could now be
derived that due diligence expected of the IRP or the RP makes it mandatory
for them to take note of any pending litigations while preparing the statutory
documents that they are required to prepare. And, it follows that, if they fail
to collect those information, necessarily there is a failure on their part to act
with due diligence. (To ensure that the IRP and the RP act with due diligence,
it may be necessary to inform the Adjudicating Authority/the NCLT about the
pending litigation, which in turn may ensure that the Information
Memorandum is a complete document on the information required)
(iv) Transparency As Fairness in action
42. The foregoing discussion significates that the duty to act fairly does not
start with the CoC but it commences even when the IRP or the RP prepare
their statement or the Information Memorandum, as the case may be. The
level of comfort an operational creditor may obtain in his journey through the
resolution process is directly proportionate to the extent of fairness with
which the CoC treats the former’s rights equitably. It is not what the RP or
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the CoC consider as fairness that matters to law, but how the operational
creditors are treated on an impartial assessment by the Adjudicating
Authority that matters.
43. Be it in private law or in public law, fairness is the fulcrum that holds
together the societal discipline and administrative order, as the case may be.
While transparency in public law echoes often in high amplitude, it is not
alien to private law. Do not the parties to a contract owe mutual transparency
to ensure fairness in their transaction? It must be remembered that the COC,
the IRP and the RP are not purely private actors but are players in a statutory
setting. Their respective roles are defined by the statute, and underlying
beneath the same is their duty to be transparent. Fairness in action will be
acknowledged only where the transparency in action is assured.
44. Therefore, there is a need for the RP to make transparent the correctness
of the Information Memorandum he prepares, more critically the valuation
reports which he makes available. The operational creditors shall have the
same access to information as the CoC, since IBC has only stripped the
operational creditors of their right to decide on their right, and not their right
to know.
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45. Transparency is not just a promoter of fairness but is also a check against
collusion and unholy collaboration between the RP, CoC and the corporate
debtor from defeating the rights of the operational creditors. It cannot be
forsaken.
(k) Duty of the Adjudicating Authority
46. From the Essar Steel case to the Rainbow Papers case and other
decisions, the Adjudicating Authority has been told that its duty is limited to
satisfying itself of the due compliance of Sec.30(2) requirement by the CoC
when the latter approved the resolution plan. The Essar Steel in particular
has held that the Adjudicating Authority shall not substitute its sense of
fairness and equity to replace the commercial wisdom of the CoC. The
Rajagopalan effect, it must be stated, does not stop with bringing in clarity in
understanding the expression ‘commercial wisdom’ of the CoC, but also has
interfered to realign the understanding of the duty of the Adjudicating
Authority. Therefore, even though the Adjudicating Authority may not sit in
appeal over the commercial wisdom of the CoC, still it is required to exercise
a jurisdiction, akin to a revisional jurisdiction, to ascertain the correctness of
what has been done before and by the CoC. And, this may have to be
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appreciated in the backdrop of the Constitutional need to constitute the
Adjudicating Authority as a neutral tribunal to save IBC from facing
embarrassing moments in view of the law declared in the Madras bar
Association case. Set on this plane and based on the discussion hereinabove
made, it could be now derived that the Adjudicating Authority may refuse to
give his approval to a resolution plan as approved by the CoC in the
following circumstances:
a) if the information which forms the basis for the CoC for according
its assent to a resolution plan is incomplete and exhibits lack of due
diligence on the part of the RP to collect and collate information.
This includes failure of the suspended Board of the Corporate
debtor to make full disclosure of its affairs, which the IRP or the RP
could have discovered with due diligence;
b) where there is lack of transparency vis-a vis the correctness of the
information to the knowledge of the operational creditors;
c) where the CoC does not provide for the minimum payment which
the operational creditors would have received in case of liquidation
of the corporate debtor;
d) where despite providing for the minimum, the operational creditors
are not fairly and equitably treated in terms of Explanation I to

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W.P. No.29845 of 2022
Sec.30(2), such as where fairness and equity might have permitted
payments above the minimum. To repeat, the Adjudicating
Authority may not substitute the commercial wisdom of the CoC
with its sense of equity and fairness, but can always refuse his
assent to a resolution plan for breach of Explanation I to Sec.30(2)
of the IBC.
(l) Finality of the Resolution Plan & the CST
47. Here the creditors of the corporate debtor, both financial and operational,
form themselves into two classes: (a) Disclosed creditors, who had the
opportunity to participate in the resolution process; and (b) the undisclosed
creditors whose existence the IRP and the RP with due diligence could have
found.
48. In the case of disclosed creditors, CST will definitely apply, if any of the
aggrieved creditors did not opt to challenge the resolution plan as approved
under Sec.31 before the Appellate Authority, the NCLAT. So far as the
undisclosed creditors are concerned if CST is applied, they become instant
victims of the callousness of the IRP and the RP as well as the deliberate
silence of the suspended board in not revealing them.

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W.P. No.29845 of 2022
49.1 Here, the corporate debtors themselves must be classified into two: The
MSME corporate debtor who had the opportunity to participate in the
resolution process effectively to the extent of presenting a resolution plan;
and (b) non MSME corporate debtor.
49.2 In ascertaining how CST will apply vis-à-vis an undisclosed creditor is
concerned, irrespective of whether the corporate debtor is a MSME or not, its
suspended Board has an obligation to make a complete disclosure. See
paragraph 36 above. This will now produce two consequences:
a) If after a successful completion of a resolution process, the same
promoters or substantially the same set of directors of the corporate
debtor continue to be in the management, then CST will not apply
to forfeit the rights of the undisclosed creditors when the suspended
Board had an opportunity to disclose all its creditors during the
resolution process. One who owes a duty to disclose cannot take
advantage of one’s own suppression of information.
b) If after a successful resolution process, a third party-resolution
applicant takes over the corporate debtor, then CST will apply to
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W.P. No.29845 of 2022
extinguish the rights of the undisclosed creditors but only against
the successful resolution applicant or its successors-in-interest, and
not against the promoters or the suspended board of directors of the
corporate debtor. It should not be forgotten that CST is a judicial
coinage to protect the third party-successful resolution-applicant
from the uncertainties of future claims, and not invented to protect
the fraud and suppression of the suspended board of the corporate
debtor.
49.3 In all the cases, where the undisclosed creditors' rights are kept alive
against the erstwhile promoters or board of directors of the corporate debtor,
as indicated in paragraph 49.2(b) above, the following aspects go with it as a
backup measure to ensure its working:
a) The immediate consequence is that each of the promoters or the
directors in the suspended board of the corporate debtor shall be
personally liable, jointly and severally, to the undisclosed creditors –
both financial and operational, and they can be proceeded against both
for civil and criminal liability. And, none of them shall be let go
anywhere near the shelter which Sec.32-A of the IBC provides, for the
extinguishment of criminal liability contemplated under the said

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W.P. No.29845 of 2022
provision is not intended for those who conspire to defeat the intent of
the IBC, play on fraud on the statute, and abuse its process. Indeed
even Sec.32-A is intended to operate only “if the resolution plan
results in change in the management or control of the corporate
debtor” and to protect a third party resolution applicant who is
unrelated to the erstwhile managers of the corporate debtor.
b) None in the suspended board of the corporate debtor shall be granted a
sanctuary behind the jurisprudential principle of corporate personality.
After all, when the corporate debtor was in crisis and was one step
short of going into liquidation when it was facing a resolution process,
the jurisprudential difference between the company and its
shareholders shall necessarily melt to pave the way for enthroning
justice for the undisclosed creditors. Corporate veil is not an
impregnable iron curtain to interfere with the court's power to lift it
when motivated acts of fraud or unfairness attempt to hide behind it,
more so, when such acts prejudice the interests of the innocent third
parties.
(m) What the Petitioner may anticipate
50. Is the writing on the wall for the petitioner? Obviously yes, as it cannot
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W.P. No.29845 of 2022
now resile from its obligation to pay the TANGEDCO. The reasons are
twofold:
➢ First, it is a MSME corporate debtor, which participated in the
resolution process, came up with a successful resolution plan and
chose not to disclose its liability to the TANGEDCO. And, today
the same promoters continue in the management. They fit in
perfectly with a situation contemplated in paragraph 48.2(a) above.
➢ Second aspect is about a lurking suspicion, to which this court did
not intend to invest more time, of a collusion between the corporate
debtor and its only financial creditor. This is explained as below:
➢ Let the facts be examined closely again: Here is a MSME in
debt-trap. It has one secured financial creditor, and God
knows how many operational creditors it had. At least
TANGEDCO was not one of its disclosed operational
creditor. If the aim of the IBC is to preserve the assets of the
MSME as a going concern even as it struggles to find a way
out of it, and if the only financial creditor had shared this
concern and had chosen not to liquidate the MSME, then it
could have easily invoked the SARFAESI Act, more
particularly Sec.13(4)(b) and could have taken over the

Page No.64/72
W.P. No.29845 of 2022
management of the MSME. This would have ensured that not
only the MSME is saved, but the interests of the operational
creditors are also preserved intact. This must also be
appreciated in the context of the nature of solution that had
eventually developed in the resolution plan offered and
accepted: The MSME petitioner offered to sell its non-core
assets for paying off its debts to its only financial creditor.
This still could have been achieved without a CIRP under the
IBC regime, as it only required that the MSME petitioner and
its only financial creditor shared due consensus. But the
charm and the temptation in invoking the IBC is that, unlike
the regime it has created, SARFAESI does not have a clean
slate theory inbuilt in its statutory scheme nor has the
advantage of any judicial pronouncements to bring it out,
with the result the MSME debtor will still be under an
obligation to pay the liability to all its other creditors.
➢ Why should the financial creditor invoke IBC even though it
has an option to invoke, and what has it achieved when it was
only offered a promise to repay the debts by the sale of the
non-core assets of the MSME petitioner? The point is not

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W.P. No.29845 of 2022
about the financial creditor’s choice of remedy- either under
the SARFAESI Act or under the IBC, or its right to invoke
them, but about the intent behind exercising its option.
Has fraud or collusion ever paraded with a placard proclaiming them to be
one such? Fraud has to be unearthed through inferences from attending
circumstances. It is hence, mandatory not to eschew the attending
circumstances from judicial purview while evaluating the bonafides of a
resolution plan, more significantly the fairness expected of it as there is an
obligation on the CoC to protect the interests of the operational creditors.
51. Another aspect which is intriguing is that when the IBC contemplates a
Committee of Creditors, it uses a plural and a not singular, and hence is it
permissible within the scheme of IBC to recognize one member CoC? This
requires examination but may have to be tested in another case.
POINTS TO PONDER
52.1 This is for the Parliament. Before winding up, this Court intends to
persuade the Parliament to evaluate the working efficiency of the IBC. Here
it would be apposite to refer to the candid review of the IBC by
Shri.V.Ramasubramanian J., (former Judge of the Supreme Court of India),

Page No.66/72
W.P. No.29845 of 2022
and it reads: 1
“An impact assessment study of IBC has now become

necessary, for more reasons than one. Of late, cases of misuse
of the provisions of the Code by all stakeholders such as (i)
debtors (ii) creditors (iii) resolution professionals and (iv)
resolution applicants, have started attracting the attention of
courts. For instance, NCLAT highlighted in a case very
recently, that large business houses with multiple business
arms cannot be allowed to disrupt small businesses.
Cases of (i) misconduct on the part of the Resolution

Professionals (ii) highhandedness on the part of some of the
creditors (iii) abuse of the Code by debtors, through collusive
CIRPs and (iv) vultures eyeing for takeover of healthy
companies are actually on the rise. The percentage of hair
cuts have increased to such an extent that in some cases, they
appear as close shave.
Therefore, it will be worthwhile to have a thorough study

conducted at the earliest so that there is a timely cure.
Otherwise, we may land up in a situation where IBC itself
may need a resolution plan.”
Shri. Anant Merathia's book titled “Defaulter's Paradise Lost” also makes a
poignant reading on the functioning of the IBC.
1Justice V. Ramasubramanian, in his introduction to the book titled “Corporate Insolvency Resolution
Process and Liquidation under the Insolvency and Bankruptcy Code, 2016,” authored by Justice L
Nageswara Rao and Avinash Krishnan Ravi, Lexis Nexis, 2023.
Page No.67/72
W.P. No.29845 of 2022
52.2 In the context of attempts to avoid the dues to TANGEDCO by the
corporate debtor, it is relevant to refer to the following passage from
judgement of the Supreme Court in K.C. Ninan Vs Kerala State Electricity
Board and Ors., 2023 SCC Online SC 663 (a case not on IBC). Speaking for
the bench, the Hon’ble Chief Justice has observed:
“117.…the failure or inability to recover outstanding

electricity dues would negatively impact the functioning of
the public utilities and licencees…. In the larger public
interest, conditions are incorporated in subordinate
legislation whereby Electric Utilities can recoup electricity
arrears. Recoupment of electricity arrears is necessary to
provide funding and investment in laying down new infra
structure and maintaining the existing infrastructure. In the
absence of such a provision, electric utilities would be left
without any recourse and would be compelled to grant fresh
electricity connection, even when huge arrears of electricity
or outstanding. Besides impacting the financial health of the
utilities, this would impact the wider body of consumers.”
It will be appreciable if the Parliament considers the views of Supreme Court
in K.C.Ninan’s case in all seriousness for protecting the statutory dues and
other commercial dues payable to Government run companies or corporations
which has the potential of adding to the financial burden of the common man.
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W.P. No.29845 of 2022
It is not about what constitutes a statutory liability that concerns this Court,
but why should there be a social distribution of the liability of the corporate
debtor, when in the best of times the latter hardly may have shared its profit
with the society, except perhaps to the extent mandated by law through
Corporate Social Responsibility. For instance, if electricity-distribution-
licensees suffer loss in the water-fall mechanism because of their
classification as operational creditors, this loss will eventually be spread
socially on other consumers.
52.3 While the legislative intent to save the corporate debtor as a going
concern may be appreciable, should it be at the cost of others, more so when
IBC offers adequate space for engineering manipulation? The larger question
therefore, is why should the Parliament bend backwards to protect one
corporate debtor at the risk of exposing the public interest to peril? The
present case, a case-study merely, illustrates how IBC could be manipulated
to defeat the interests of the undisclosed creditors of the corporate debtor.
Some points for the Parliament to ponder, and some legislative correction for
it to make, lest the long term impact of the IBC could be disastrous, if not
counter productive. Incidentally, has the Parliament taken note of the
percentage of recovery generally achieved out of a successful resolution

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process of the corporate debtor?
CONCLUSION
53. In the result, this petition is dismissed and given the nature of questions it
raised, there will no order as to costs. And the connected miscellaneous
petition stands closed.
Note:
After going through the papers in this case and the authorities and other
literature on the topic, it became an imperative necessity for this Court to
find an internal balance in the working of the IBC to ensure that the statute
does not sap the confidence of the operational creditors, nor it becomes a
tool in the hands of a few to profit out of a situation unduly, who include
some IRPs and the RPs lacking in professional integrity (till at least the
Parliament decides to review the functioning of the IBC). And the decision to
this case is well wrapped in this endeavour. It therefore, required some
intimate moments with the issue, requiring deeper contemplation and took a
longer time to prepare this order.
07.06.2024
Index : Yes / No
ds
Page No.70/72
W.P. No.29845 of 2022
To:
1.The Superintending Engineer

TANGEDCO
Cuddalore Electricity Distribution Circle
Capper Hills, Cuddalore - 607 001.
2.The Assistant Electrical Engineer

TANGEDCO
Anantheeswaran Koil Street
Chidambaram - 608 001.
Page No.71/72
W.P. No.29845 of 2022
N.SESHASAYEE.J.,
ds
Pre-delivery order in
W.P.No.29845 of 2022
07.06.2024
Page No.72/72

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W.P. No.

IN THE HIGH COURT OF JUDICATURE AT MADRAS

W.P. No.29845 of 2022

S. No Contents Para No.

IN THE HIGH COURT OF JUDICATURE AT MADRAS

CORAM: JUSTICE N.SESHASAYEE

W.P. No.29845 of 2022

The National Sewing Thread Co. Ltd.,

1.The Superintending Engineer

2.The Assistant Electrical Engineer

India, as such arbitrary, highhanded, illegal, without jurisdiction and direct

For Petitioner : Mr.E.Omprakash, Senior Counsel

For Respondents : Ms.Keerthana R.Shenoi

demand notice of the respondents and to further direct the respondents to

provide the electricity connection.

2. The case of the petitioner is as below:

a) The petitioner herein is a public limited company, and it is also

registered under the MSME Act, 2006. It had availed financial

assistance from M/s. Indian Overseas Bank (henceforth IOB).

However, it suffered huge business loss owing to which it could not

service its loan-liability to the IOB, and as to be expected its loan

was notified as NPA by the lender. Thereafter on 24.03.2017, the

IOB assigned the debt of the petitioner-company to M/s. Alchemist

Asset Reconstruction Company Ltd., (hereinafter referred to as

b) The assignee of the loan, as a Financial Creditor moved the NCLT

with an application under Sec.7 of the IBC against the petitioner-

company for initiating a Corporate Insolvency Resolution Process

(henceforth CIRP). The statutorily prescribed course of action

commenced, accordingly an Interim Resolution Professional (IRP)

was appointed, Committee of Creditors (IOB) was constituted, and

it approved the resolution plan and submitted it, and on 06.12.2021

it was approved by the Adjudicating Authority, the NCLT.

c) In terms of the resolution plan, only the financial creditor of the

Operational Creditors are concerned, the resolution plan directed

The petitioner accordingly redeemed itself from the debt-trap it

d) While so, TANGEDCO, to which the petitioner owed arrears of

unpaid electricity charges from June, 2019 to a tune of

Rs.32,86,061/- issued a demand notice dated 19.01.2022 for the

through CIRP and as per the Resolution Plan approved by the

the purview of the Resolution Plan stood extinguished. And, since

the demand of the TANGEDCO was not met, it promptly

disconnected the electricity service connection of the petitioner.

e) Thereafter, on 24.2.2022, the petitioner applied for a temporary

connection of the LT Energy. TANGEDCO, however, declined to

provide the electricity service connection on the ground that the

petitioner needs to pay the arrears of electricity consumption

f) Contending that the demand of arrears of electricity charges runs

counter to the spirit behind the IBC engineered Resolution Process,

the claim of the TANGEDCO itself is arbitrary and illegal, the

petitioner challenges it in this proceeding.

3. TANGEDCO has filed its counter, wherein it essentially highlighted that,

(a) for non-payment of current consumption charges, the electricity

connection provided to the petitioner was disconnected on 08.08.2019, well

prior to the commencement of insolvency proceedings; and (b) Regulation 17

fresh electricity service connection to pay the entire arrears of electricity

the unclaimed outstanding liability of the petitioner company has

the corporate debtor to the Central Government or State Government or to

extinguished, and hence, no proceedings in respect of such dues for the

the ratio in Paschimanchal Vidyut Vitran Nigam Ltd. Vs Raman Ispat

Creditors of Essar Steel India Limited, through authorised signatory Vs