NCLAT Rules, Successful Auction Purchaser Liable To Pay 'True-Up' Charges After Sale Of Corporate Debtor As Going Concern
Pranav B Prem
The National Company Law Appellate Tribunal (NCLAT), New Delhi, comprising Justice Rakesh Kumar Jain (Judicial Member), Justice Mohammad Faiz Alam Khan (Judicial Member), and Mr. Naresh Salecha (Technical Member), has held that a successful auction purchaser who acquires a corporate debtor as a going concern cannot evade liability to pay “true-up” charges under applicable electricity laws once the sale certificate is issued by the liquidator. The bench ruled that such liability arises from the continued operation of the corporate debtor as a legal entity post-sale and is not extinguished by the liquidation process or by provisions of the Insolvency and Bankruptcy Code, 2016 (IBC).
Background
The appeals were filed by Maithan Alloys Limited, the successful auction purchaser of Impex Metal & Ferro Alloys Ltd., challenging the orders dated April 16 and April 23, 2024 passed by the NCLT, Kolkata Bench. The appellant contended that the NCLT erred in upholding the deduction of ₹3.16 crore as true-up charges for the financial years 2014–2019 by the Eastern Power Distribution Company of Andhra Pradesh Limited (APEPDCL), the state-owned electricity distribution company. The appellant argued that these deductions were contrary to the Andhra Pradesh Electricity Regulatory Commission (APERC)’s Common Order dated March 30, 2022, and that the true-up charges pertained to pre-CIRP and CIRP periods, which should have been settled under the waterfall mechanism of Section 53 of the IBC. It further claimed entitlement to ₹20.72 crore (less the refunded amount), asserting that the deduction of ₹3.16 crore violated both the APERC order and NCLAT’s earlier directions issued in May 2022.
Appellant’s Contentions
The appellant submitted that it had acquired the corporate debtor through liquidation as a going concern and deposited ₹24.50 crore with APEPDCL, including a ₹4.5 crore security deposit, to ensure re-energization of electricity supply as directed by the NCLT in September 2021. It argued that the true-up charges were calculated based on a control period (FY 2014–2019) predating its ownership and, therefore, could not be imposed on it. The appellant also relied on Rule 470(5) of the APERC Common Order (2022), claiming that the provision absolved entities taking over assets under insolvency of past electricity dues.
Respondent’s Submissions
The Eastern Power Distribution Company of Andhra Pradesh Limited opposed the appeal, asserting that all actions were taken in accordance with the Electricity Act, 2003 and the APERC’s Regulations, 2005, which require DISCOMs to recover true-up charges to reconcile actual costs with approved tariffs. It explained that the true-up amount of ₹3,16,08,440 was determined pursuant to the APERC’s Common Order dated March 30, 2022, covering the third control period (FY 2014–2019). The company contended that these charges were calculated in compliance with Clauses 10 and 19 of Regulation 4 of 2005, forming part of a multi-year tariff framework to ensure financial stability. The respondent further maintained that the retention of ₹3.16 crore from the appellant’s ₹4.9 crore security deposit was a lawful adjustment of dues accrued after the sale of the corporate debtor as a going concern.
NCLAT’s Observations
The bench observed that the liquidation sale of Impex Metal & Ferro Alloys Ltd. was completed under Regulation 45(3) of the IBBI (Liquidation Process) Regulations, 2016, where the corporate debtor is sold as a going concern. Under this framework, the entity continues to exist with all its obligations, licenses, and liabilities intact, and only the ownership changes hands. The Tribunal held that once the sale certificate was issued (on September 16, 2021), the successful purchaser became responsible for all statutory dues arising post-sale, including true-up charges levied under the regulatory regime of APERC.
Rejecting the appellant’s argument that Rule 470(5) of the APERC order exempted it from liability, the bench clarified that the phrase “DISCOMs shall act as per law” did not absolve the purchaser of its legal obligations. Quoting from the order, the bench noted:“The term ‘as per law’ does not mean that true-up charges are not payable by the Appellant. This was not a typical case under CIRP Regulations but a takeover of the corporate debtor under the IBBI (Liquidation Process) Regulations, 2016. Once the purchaser acquired the corporate debtor and a sale certificate was issued, it was liable to pay charges levied thereafter.” The NCLAT emphasized that true-up charges are statutory adjustments reflecting differences between projected and actual electricity costs, and their recovery cannot be negated merely because the base years precede the acquisition.
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Holding that Maithan Alloys Ltd., as the successful auction purchaser, had inherited the corporate debtor’s post-sale liabilities, the NCLAT concluded that the true-up charges of ₹3.16 crore were legally recoverable. “We do not agree with the contention that the Appellant is absolved of such true-up charges. Once the corporate debtor is sold as a going concern and the sale certificate is issued, the purchaser is liable to pay charges levied thereafter,” the bench held.Accordingly, the appeals were dismissed, and the orders of the NCLT, Kolkata, upholding the deduction of true-up charges were affirmed.
Appearance
For Appellant: Mr. Rishav Banerjee, Ms. Madhuja Burman, Ms. Anoushka Dey, Advocates.
For Respondents: Mr. Joy Saha, Sr. Advocate with Mr. Sidhartha Sharma, Mr. Arjun Asthana, Mr. Aditya Mishra, Advocates.
Cause Title: Maithan Alloys Limited Versus Easter Power Distribution Company
Case No: Comp. App. (AT) (Ins) No. 1514 of 2024 & I.A. No. 5492, 5493 of 2024
Coram: Justice Rakesh Kumar Jain (Judicial Member), Justice Mohammad Faiz Alam Khan (Judicial Member),Mr. Naresh Salecha (Technical Member)
