ESSENTIAL GOODS SERVICES UNDER IBC
Legal Era|December 2020
WHAT DOES IT ESSENTIALLY MEAN?
Ashwin Bishnoi, Charu Chitwan

SECTION 14(2) OF THE CODE PROHIBITS THE TERMINATION, SUSPENSION AND INTERRUPTION OF SUPPLY OF “ESSENTIAL GOODS OR SERVICES” TO THE OPERATIONS OF THE CORPORATE DEBTOR DURING THE ‘MORATORIUM’ PERIOD UNDER THE CODE

One of the key tenets of the Insolvency and Bankruptcy Code, 2016 (Code) is preservation of the corporate debtor as a going concern until completion of the insolvency resolution process (CIRP) initiated against it. This is intended to preserve value of the assets of the corporate debtor and facilitate a successful resolution. In furtherance of this goal, Section 14(2) of the Code prohibits the termination, suspension and interruption of supply of “essential goods or services” to the operations of the corporate debtor during the ‘moratorium’ period under the Code, i.e. from the date of commencement of the insolvency resolution process until its conclusion.

Regulation 32 of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 (CIRP Regulations) classifies four supplies as “essential goods and services”, namely electricity, water, telecommunication services and information technology services. However, the supply of these items would not be considered “essential” if it is provided in large quantities as a direct input to the output produced or supplied by the corporate debtor1 or is used by the corporate debtor to make a profit.2 For instance, water supplied to a corporate debtor would be considered an essential supply for drinking and sanitation purposes, but not for generation of hydro-electricity.3

While this list suggests that the Code only prohibits disruption of these four supplies, in practice, insolvency tribunals have stepped beyond this list and expanded the meaning of “essential goods and services”. Illustratively, in Canara Bank v. Deccan Chronicle Holdings Limited4, the tribunal held printing ink, printing plates, printing blanket, solvents etc. as “essential” goods for operation of a corporate debtor engaged in the business of publishing newspapers. The order was upheld by the National Company Law Appellate Tribunal (NCLAT) in appeal.5

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