New Delhi Insolvency and Bankruptcy Code (IBC) provisions are “fully applicable” to state-run power distribution companies, and a Corporate Insolvency Resolution Process (CIRP) can be initiated against them, the power ministry said, potentially leading to creditors Permission to turn the screws to the indebted discoms.
Cash-strapped distribution companies in the states are currently dues almost 1 trillion to power generation companies, according to data from the PRAAPTI portal of the Ministry of Power. Delays in payments by discoms also have implications for non-payment of coal dues by Genco, limited supplies, low fuel stocks at power plants and concerns over power shortages.
Discoms have traditionally been the weakest link in the power value chain, plagued by low collections, escalating power purchase costs, inadequate tariff hike and subsidy distribution, and mounting arrears from government departments.
The Union Ministry of Power’s stand was conveyed to the Ministry of Law and Justice on Monday.
The clarification implies that the state distribution utilities can be taken to the National Company Law Tribunal (NCLT) for default on payment of 1 crore, the extent of initiation of bankruptcy proceedings by financial or operational creditors.
In the past, some central public sector power producers had to go to the extent of threatening to cut power supply to distribution companies to get back some of their dues.
The five-year-old IBC has been effectively used by operational creditors such as vendors and other business partners to recover their dues.
“The IBC does not differentiate between state-owned and private enterprises at the start of the corporate insolvency resolution process. However, hardly any state-owned enterprise has been admitted to the CIRP since the code came into force,” said Pawan Kumar Vijay, founder of consulting firm Corporate Professionals Group. In some cases, operational creditors opted for IBC provisions. and they were able to get funds from it. Such companies before entry. Vijay said, “Even NCLT has been reluctant to go ahead with the admission of such companies under IBC and from the Provides a fair opportunity for disposal of cases earlier.”
The Ministry of Power, in a communication to the Department of Legal Affairs on Monday, cited a 2019 Supreme Court order that the only exemption from IBC was to statutory bodies having a sovereign function. The Mint has reviewed the communication.
The Union Power Ministry wrote, “The MoP is of the view that in the light of the above judgment of the Hon’ble Supreme Court and the position established in several judicial precedents of NCLT and NCLAT, the provisions of IBC, 2016 are fully applicable. State-owned companies like TANGEDCO CIRP can be initiated against discoms and such discoms and there is no overlap between Electricity Act and IBC.
A power ministry spokesperson did not immediately respond to Mint’s queries.
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