Ruby and Emerald Pvt. Ltd (REPL), incorporated on 1 st April, 2013 has its registered office in Surat. Gems and Gems Pvt. Ltd (GGPL), incorporated on 11 th September, 2014 has its registered office in Jaipur. REPL was ap

CS Professional · Insolvency - Law and Practice · PYQS · December 2022
Ruby and Emerald Pvt. Ltd (REPL), incorporated on 1 st April, 2013 has its registered office in Surat. Gems and Gems Pvt. Ltd (GGPL), incorporated on 11 th September, 2014 has its registered office in Jaipur. REPL was approached by GGPL for procuring its goods which can be used as raw material in the factory of REPL. It was agreed through a contract between REPL and GGPL that upon procurement of the goods entire payment shall be made by REPL within 10 days of issuance of the tax invoice. The transaction was smoothly going between REPL and GGPL without any delays in supply of goods and payment. Owner of REPL died due to cardiac arrest and the business operations of REPL were severely affected. REPL started supplying faulty goods to its customers and the quality of raw material being supplied by the suppliers also deteriorated gradually. As on 2 nd January, 2021, there were no dues outstanding towards GGPL and balance confirmation from GGPL was also taken by REPL. However, between 3 rd January, 2021 and 31 st May, 2021 various transactions happened between REPL and GGPL. GGPL requested for the payments multiple times for such transaction between 3 rd January, 2021 and 31 st May, 2021; however, GGPL kept supplying goods in good faith based on relationship with REPL. REPL neither responded to requests of GGPL nor stopped buying goods from them. Because of the long overdue from REPL, GGPL sent a demand notice on 16 th June, 2021 through their lawyer to make the payment of entire outstanding to the tune of ₹ 1,25,00,000/- exclusive of interest @ 15% p.a. within 10 days from the receipt of the notice, failing which GGPL will take suitable actions under the law. No communication whatsoever was received from REPL. Therefore, as per the directions of the lawyer, GGPL filed an application to initiate Corporate Insolvency Resolution Process (CIRP) against REPL. Also, they have sent a letter to the power company to disconnect the supply of electricity to REPL considering that they are not in a position to pay their dues. Considering the above facts answer the following questions: Examine whether the power company can disconnect the electricity supply based on the letter received from GGPL, being an applicant who initiated CIRP?

Answer & Explanation:

Section 14(1) of the Insolvency & Bankruptcy Code deals with the moratorium and provides that subject to provisions of sub-sections (2) and (3), on the insolvency commencement date, the Adjudicating Authority shall by order declare moratorium. Section 14(2) of the Code states that the supply of essential goods or services to the corporate debtor as may be specified shall not be terminated or suspended or interrupted during moratorium period. As per regulation 32 of IBBI (Resolution Process for Corporate Persons) Regulations, 2016 essential supplies referred to in section 14(2) of the Code shall mean electricity to the extent these are not a direct input to the output produced or supplied by the corporate debtor. Considering the above, power-company cannot disconnect the power supply.

Topics: Corporate Insolvency Resolution Process (CIRP)

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