Insolvency proceedings can be initiated against state-run discoms, gencos: Power Ministry

• The opinion was shared by the Power Ministry in reference to a case filed by TANGEDCO against CIRP proceedings initiated against it in Madras High Court
• A government company as defined under Section 2 (45) of the Companies Act would fall under Insolvency Code (IBC), the Power Ministry said

New Delhi: Opening the doors for the initiation of insolvency proceedings against state-owned power distribution companies (discoms), the Ministry of Power has said that in case of default of payment by creditors, discoms as wells as power generation companies (gencos) can be taken to the National Company Law Tribunal (NCLT) under the Indian Bankruptcy Code (IBC). The clarification was issued by the Power Ministry in a letter to the Secretary of the Department of Legal Affairs earlier this month.

The opinion was shared by the Power Ministry in reference to a case filed by Tamil Nadu Generation and Distribution Company (TANGEDCO) against Corporate Insolvency Resolution Process (CIRP) proceedings initiated against it by South India Corporation Pvt Ltd in the Madras High Court.

Discoms, gencos very much under Insolvency Code: Power Ministry

"As far as state-owned (power) distribution and generation company like TANGEDCO is concerned, it is clear that a government company as defined under Section 2 (45) of the Companies Act would fall under Insolvency Code (IBC)," the Power Ministry said in the letter. It added that TANGEDCO cannot be categorised as a government body formed by way of a statute for performing sovereign government function. 

The ministry added that TANGEDCO is a government company formed under Companies Act, 2013 and very much under the ambit of IBC as per Section 3(7) of the Insolvency Code. 

IBC proceedings against discoms

The view shared by the Ministry of Power assumes significance as state-owned discoms across the country have been incurring losses for several years and are saddled with huge outstanding dues. The dues owed by discoms have affected cash flows in the power sector and the situation has prompted the government to extend liquidity infusion schemes to discoms to alleviate financial stress in the sector. According to the PRAAPTI portal, the outstanding dues of discoms stood at Rs 1,21,830 lakh crore in November, which included overdues of Rs 99,385 crore. 

The clarification issued by the ministry may lead to initiation of insolvency proceedings against more discoms.

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