Unpaid Liquidation Claims Cannot Justify Denial Of Fresh Electricity Connection: NCLT Chandigarh

The Chandigarh Bench of the National Company Law Tribunal (NCLT) has held that an electricity distribution company cannot deny a fresh electricity connection to a successful liquidation auction purchaser to recover the Corporate Debtor's unpaid pre-Corporate Insolvency Resolution Process (CIRP) dues.

A Bench comprising Judicial Member Khetrabasi Biswal and Technical Member Shishir Agarwal directed Punjab State Power Corporation Limited (PSPCL) to provide a fresh connection to Harish Kumar Agarwal, who purchased the assets of Cheema Spintex Limited through liquidation, without insisting on payment of the Corporate Debtor's outstanding electricity dues. It held:

“The admitted claim of Respondent No. 1 is a claim against the Corporate Debtor and has already entered the liquidation process. The fact that the claim remained unpaid owing to insufficiency of funds under the Section 53 waterfall cannot, by itself, create a corresponding liability in the Applicant, who purchased the assets through the liquidation process.

If Respondent No. 1 were permitted to recover the said pre-CIRP dues from the Applicant by withholding a fresh electricity connection, it would, in effect, permit recovery of the Corporate Debtor's liability outside the liquidation mechanism.”

Cheema Spintex Limited entered CIRP on 17 May 2024 and was ordered into liquidation on 8 May 2025. During CIRP, PSPCL submitted a claim of Rs. 59.73 lakh, of which the Resolution Professional (RP) admitted Rs. 43.95 lakh.

The admitted claim continued in the liquidation process and was required to be dealt with under Section 53 of the Insolvency and Bankruptcy Code, 2016, which governs the distribution of liquidation proceeds.

In December 2025, Harish Kumar Agarwal emerged as the successful bidder for the Corporate Debtor's assets in an auction conducted by the liquidator. After he paid the sale consideration and took possession of the property, he applied for a fresh electricity connection.

PSPCL rejected the application, citing outstanding dues of Rs. 43.95 lakh and claiming that interest, surcharges and penal charges had increased the liability to approximately Rs. 1.61 crore.

Before the Tribunal, Agarwal argued that PSPCL could not compel a third-party auction purchaser to discharge the Corporate Debtor's pre-CIRP liabilities. He submitted that PSPCL's admitted claim had to be dealt with through the insolvency and liquidation framework and that making payment of those dues a condition for a fresh connection would permit recovery outside the statutory process.

The liquidator supported Agarwal and confirmed that PSPCL's claim had been admitted in the insolvency proceedings.

The Bench held that the failure to satisfy PSPCL's claim due to insufficient liquidation proceeds could not transfer the Corporate Debtor's liability to the auction purchaser. It further observed that withholding a fresh connection to recover those dues would circumvent the liquidation mechanism and grant PSPCL a preference contrary to the statutory distribution framework.

Accordingly, the NCLT directed PSPCL to process and sanction a fresh electricity connection for Agarwal without insisting on payment of the Corporate Debtor's pre-CIRP electricity dues, subject to the usual statutory, technical and procedural requirements for a new connection.