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

Continue reading your story on the app

Continue reading your story in the magazine

MORE STORIES FROM LEGAL ERAView All

If You Think Positive Covid Is A Big Opportunity

Senior Vice President and Head of Legal, ESSAR CAPITAL, Badrinath Durvasula, holds forth on his professional journey, the essence of leadership, working from home, books and more…

10+ mins read
Legal Era
December 2020

PROJECT DEVELOPMENT

JOINT VENTURE TRANSACTIONS

10+ mins read
Legal Era
December 2020

NEW ARBITRATION RULES

PUBLISHED BY THE LONDON COURT OF INTERNATIONAL ARBITRATION (LCIA) AND INTERNATIONAL CHAMBER OF COMMERCE (ICC)

6 mins read
Legal Era
December 2020

M&A in the time of COVID and beyond

What is clear for those engaging in cross-border M&A is that countries around the world are becoming increasingly protective of their economies and industries, with new rules being introduced and existing rules being more widely applied

6 mins read
Legal Era
December 2020

SWITZERLAND A DIFFERENTIATED APPROACH TO FRAUD

Swiss law interprets the offense of fraud in a special way where in addition to the characteristics of deception and damage as known in many jurisdictions, a qualified lie, i.e. a malicious approach, is required

5 mins read
Legal Era
December 2020

JOINT VENTURE DISPUTES MEDIATING

Mediation has shown itself to be a powerful tool for bringing a speedy and effective end to crossborder disputes while preserving the commercial relationship between them.

7 mins read
Legal Era
December 2020

Recognition of HONG KONG INSOLVENCY PROCEEDINGS IN MAINLAND CHINA

A TEST CASE IN THE MAKING?

8 mins read
Legal Era
December 2020

CONFIDENTIALITY IN ARBITRATION: RECENT DEVELOPMENTS IN SINGAPORE

Two recent developments in Singapore case law and legislation reflect a willingness to preserve confidentiality related obligations in all arbitrations

5 mins read
Legal Era
December 2020

ESSENTIAL GOODS SERVICES UNDER IBC

WHAT DOES IT ESSENTIALLY MEAN?

6 mins read
Legal Era
December 2020

A BIDEN ADMINISTRATION'S NEW VISION FOR THE AMERICAN WORKPLACE

A LOOK AT THE KEY CHANGES PRESIDENT-ELECT BIDEN IS LIKELY TO MAKE ONCE HE TAKES OFFICE

7 mins read
Legal Era
December 2020
RELATED STORIES

Bankruptcies offer new opportunity for consultants

Several consulting firms and insolvency professionals are exploring plans to set up units that specialise in running bankrupt businesses after the Insolvency and Bankruptcy Board of India (IBBI) proposed changes to allow entities to run insolvent companies, industry executives said.

1 min read
Hindustan Times
June 27, 2022

परिसमापन प्रक्रिया में सख्ती की जरूरत

आईबीबीआई का प्रस्ताव

2 mins read
Business Standard - Hindi
June 16, 2022

BANKERS IN A BIND AFTER NCLAT RULING ON DHFL RESOLUTION

Bankers are now in a quandary after the NCLAT recently ruled that the Committee of Creditors' (CoC) decision to approve the resolution plan of DHFL was "illegal”; the plan containing an “illegal” stipulation on recovery of avoidance transactions was not sustainable.

2 mins read
BANKING FINANCE
April 2022

IBC: SC says employees' salary priority

THE SUPREME COURT on Tuesday held that wages and salaries of workmen and employees of a company undergoing insolvency should be paid first in full, provided they worked when the resolution professional was managing the company as a going concern.

1 min read
Financial Express Mumbai
April 20, 2022

Tribunal declares Supertech insolvent but all is not lost for home buyers

REAL estate developer Supertech has been declared bankrupt by the National Company Law Tribunal (NCLT) in response to a petition filed by financial creditor Union Bank of India (UBI) for non-payment of dues worth `432 crore.

1 min read
The Morning Standard
March 26, 2022

Future Retail lenders move to secure their interests

IN THE EVENT OF ASSETS CHANGING HANDS

2 mins read
Financial Express Mumbai
March 16, 2022

Reliance Infratel: Chinese banks write to FM, IBBI

Intervention sought from finance minister and IBBI to speed up the resolution process

2 mins read
Financial Express Mumbai
March 15, 2022

All papers submitted while seeking CCI nod: Amazon to NCLAT

Amazon is contesting the CCI's December 2021 order that kept in abeyance its earlier approval for the 2019 deal with Future Coupons

1 min read
Financial Express Mumbai
March 01, 2022

SC defers hearing on Amazon's plea

POST NCLAT CASE

1 min read
The Morning Standard
February 24, 2022

Future Group case: SC tells NCLAT to decide on Amazon plea expeditiously

DEFERRING ITS HEARING on the plea for resumption of arbitration proceedings in the Singapore tribunal till Thursday (March 3), the Supreme Court on Wednesday asked the National Company Law Appellate Tribunal (NCLAT) to expeditiously decide Amazon's appeal against the Competition Commission of India's (CCI) December 17 order that kept in abeyance its nod for the 2019 deal with the Future Coupons (FCPL).

1 min read
Financial Express Mumbai
February 24, 2022