Laws, Courts & Judgments.

NCLT Orders Electricity Board to Refund Security Deposit, Upholds Supremacy of IBC Moratorium

Mumbai: The National Company Law Tribunal (NCLT), Mumbai Bench, comprising Sh. Mohan Prasad Tiwari and Sh. Charanjeet Singh Gulati, has ruled that a security deposit held by an electricity distribution company is an asset of the corporate debtor. The Tribunal held that adjusting this deposit against pre-insolvency dues during the moratorium period under Section 14 of the Insolvency and Bankruptcy Code, 2016 (IBC) is illegal. The bench directed the electricity authority to refund the adjusted amount of ₹13,23,102 to Hybro Foods Private Limited within one month.

Case Background

The case involves Hybro Foods Private Limited (the "Corporate Debtor"), which was admitted into the Corporate Insolvency Resolution Process (CIRP) on March 3, 2023, and subsequently went into liquidation on March 27, 2025. The Resolution Professional (RP) filed an application (IA 651/2024) seeking a refund of a security deposit of ₹13,23,102 from the Maharashtra State Electricity Distribution Company Limited (the "Respondent").

The RP discovered that the electricity authority had adjusted this security deposit against outstanding energy bills on September 6, 2023, a date falling well within the moratorium period that commenced on March 3, 2023.

Arguments from Both Sides

• Applicant's (RP's) Arguments: The counsel for the RP argued that the adjustment of the security deposit during the moratorium was a direct violation of Section 14 of the IBC. It was contended that the deposit remained an asset of the corporate debtor and could not be appropriated by the electricity company to settle past dues once the CIRP had begun. Reliance was placed on a National Company Law Appellate Tribunal (NCLAT) judgment in Superintending Engineer Vs. Sivrama Prasad Bhamidi , which dealt with identical facts.

• Respondent's (Electricity Company's) Arguments: The electricity company contended that their actions were lawful. They stated that the Corporate Debtor had failed to pay an energy bill of ₹25,82,060 in November 2022, leading to a temporary disconnection in December 2022 and a permanent disconnection in February 2023, both prior to the CIRP. They argued that the adjustment, although finalized in a bill dated September 6, 2023, became due in December 2022 when the default occurred. The respondent claimed their action was in accordance with Regulation 13.8 of the Maharashtra Electricity Regulatory Commission (Supply Code) Regulations, 2021.

Court's Analysis and Legal Principles

The NCLT bench carefully examined the timeline and the prevailing legal framework. The central issue was whether the IBC's moratorium would override the specific regulations governing electricity supply.

The Tribunal highlighted two undisputed facts: 1. The CIRP and the associated moratorium began on March 3, 2023. 2. The adjustment of the security deposit was finalized on September 6, 2023.

The bench unequivocally stated that on the date of adjustment, the moratorium was in full force. It emphasized that the security deposit was an asset of the Corporate Debtor and could not have been "appropriated/adjusted" by the creditor during this period.

In a crucial observation, the Tribunal invoked the overriding effect of the IBC as enshrined in Section 238:

"As regards the application of Regulation 13.8 of the Maharastra Electricity Regulatory Commission (Supply Code Regulations, 2021) are concerned, it is stated that as per the provision of Section 238 of IBC, any provision or any other law for time being in force which are in consistent with the provisions of IBC, then the provisions of IBC would prevail."

This reasoning reaffirms the supremacy of the IBC in matters of insolvency, ensuring that the 'calm period' intended by the moratorium is not disturbed by creditors attempting to recover dues outside the established legal process.

Final Decision and Implications

Finding the adjustment to be a clear violation of the Section 14 moratorium, the NCLT disposed of the application with a decisive order.

"Accordingly, it is deemed appropriate to direct the Respondent to refund this amount of security deposit of Rs. 13,23,102/- to the designated account of the corporate debtor within one month."

This judgment serves as a strong reminder to all creditors, including government utilities, that the moratorium under the IBC is absolute. It protects the assets of a company undergoing insolvency to ensure a fair and orderly resolution or liquidation process for the benefit of all stakeholders. Any attempt to set off or adjust past dues during this period will be deemed inconsistent with the IBC and will not be upheld by the courts.

The NCLT also addressed other pending applications in the case, directing the RP and suspended directors to comply with previous orders regarding submission of documents and cooperation, setting a new date of November 27, 2025, for further consideration.