The National Company Law Tribunal, Chandigarh Bench , has decisively ruled that an electricity distribution company cannot withhold a fresh connection from a successful auction purchaser to recover unpaid pre- Corporate Insolvency Resolution Process (CIRP) dues of a corporate debtor. This verdict brings significant clarity to the status of third-party purchasers in liquidation proceedings , effectively shielding them from the past financial liabilities of the entity they acquired through the statutory insolvency resolution mechanism .

The case involved Harish Kumar Agarwal, who successfully purchased the assets of Cheema Spintex Limited during a liquidation auction. After fulfilling all required payment obligations and obtaining the official sale certificate in March 2026 , Agarwal formally applied to the Punjab State Power Corporation Limited ( PSPCL ) for a fresh electricity connection to the premises. The utility provider, however, rejected his request, citing the existence of outstanding electricity dues amounting to ₹43,95,270. With the subsequent addition of interest, surcharges, and various penal charges, the utility claimed that the total liability had grown to approximately ₹1.61 crore, insisting that this amount be cleared before any new connection could be sanctioned.

The tribunal’s ruling marks a critical intervention in the commercial interaction between state utilities and the insolvency framework. By rejecting the utility's demand, the bench underscored that an auction purchaser, having acquired the assets through a transparent and court-sanctioned process, should not be burdened with the legacy debts of the erstwhile corporate debtor. The decision emphasizes that the liquidation process under the Insolvency and Bankruptcy Code (IBC), 2016 , is designed to settle liabilities within a structured legal hierarchy, not to impose them indefinitely upon new owners.

Clearing Hurdles for Asset Integration

During the proceedings, the liquidator of Cheema Spintex Limited, Mr. Arun Gupta , confirmed that the utility’s claim of ₹43,95,270 had already been admitted during the insolvency process. However, because the available liquidation proceeds were insufficient to fully satisfy the claims of secured creditors—including major financial institutions like IDBI Bank and Punjab National Bank —there were no funds remaining for distribution to other stakeholders under the statutory waterfall mechanism of Section 53 of the IBC .

The applicant, Agarwal, argued that compelling him to pay these pre-existing debts would essentially grant the power corporation an unauthorized preference, circumventing the priority list established by the law. The tribunal found merit in this argument, noting that the utility had already participated in the insolvency process and had its claim processed according to the available legal mechanism. The fact that the claim remained unpaid due to the exhaustion of the liquidation estate did not grant the utility the right to leverage the requirement for a new connection as a debt collection tool.

As observed by the bench during the proceedings: “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.”

Upholding the Integrity of Liquidation Proceeds

The NCLT ’s findings reiterate that the primary objective of a liquidation sale is to maximize the value of assets and ensure their smooth transition to new ownership, thereby contributing to economic recovery. Allowing utility providers to demand historical dues from purchasers would undermine the efficacy of the bidding process and deter potential investors from engaging with stressed assets. The court explicitly noted that the terms of an auction sale, including the " as is where is " clause, could not be interpreted to override the statutory safeguards intended to provide a " clean slate " to successful bidders.

The judicial members further highlighted that their decision aligns with established precedents, including the recent trajectory of supreme court rulings concerning the rights of resolution applicants and auction purchasers. By distinguishing between the corporate debtor’s liability and the personal burden of a third-party purchaser, the tribunal has ensured that the risks associated with the liquidation process remain contained within the intended statutory boundaries.

The tribunal stated, “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.”

In the operative part of its order, the tribunal directed the Punjab State Power Corporation Limited to immediately process and sanction the fresh electricity connection. This direction is contingent upon the applicant fulfilling the standard technical and procedural formalities required for any new power connection, such as the payment of current connection fees and administrative charges. However, the court explicitly prohibited the utility from making the payment of the pre-CIRP dues a condition precedent for granting this service.

By resolving this dispute, the NCLT has reinforced the principle that the insolvency and liquidation regime must operate as a self-contained system. The ruling provides a firm precedent for future cases, ensuring that utility companies and similar service providers adhere to the statutory waterfall mechanism rather than using service denial to circumvent the distribution priorities established by law. The matter concluded with the discharge of the liquidator from the specific Interlocutory Application , signaling the completion of the tribunal's oversight on this particular dispute and allowing the purchaser to proceed with the activation of the assets.