Corporate Debtor Liable For Electricity Dues Despite Lessee's Consumption; Privity of Contract Prevails: NCLT Chennai

Admitting a power generator's insolvency plea against its industrial consumer, the National Company Law Tribunal, Chennai, has held that a company cannot escape liability for electricity dues by claiming the power was consumed by its lessee.

The tribunal ruled that liability under Section 9 of the Insolvency and Bankruptcy Code flows from privity of contract, not from actual usage of services.

Rejecting AKMG Alloys Pvt Ltd's defence, the coram observed:

“So long as the Corporate Debtor remains the contracting party under the Power Supply Agreement, internal arrangements or lease agreements with third parties cannot absolve it of its contractual obligations towards the Operational Creditor.”

A coram of Judicial Member Jyoti Kumar Tripathi and Technical Member Ravichandran Ramasamy admitted the Section 9 petition filed by OPG Power Generation Pvt Ltd over unpaid electricity dues arising from a Power Supply Agreement dated April 1, 2018.

OPG said it supplied electricity under the agreement and raised invoices in 2019, which were not disputed at the relevant time. The company alleged that AKMG failed to clear the outstanding principal and contractually agreed interest despite reminders and a demand notice under Section 8.

AKMG argued that its premises had been leased to Ferrosco Industries Pvt Ltd, which it said was the actual consumer of electricity during the relevant period. It also raised disputes over billing and interest.

The tribunal noted that execution of the agreement was undisputed. The supply of electricity was not denied. The agreement was neither terminated nor novated.

The bench held that internal lease arrangements could not shift contractual liability. Applying the Supreme Court's test in Mobilox Innovations Pvt Ltd v Kirusa Software Pvt Ltd, it found that the disputes raised were not bona fide or pre-existing.

Holding that operational debt and default were established, the Tribunal admitted the petition, imposed moratorium under Section 14, and initiated corporate insolvency resolution process against AKMG Alloys Pvt. Ltd.