Payment of dues: IBC overrides provision of the Electricity Act

The Hon'ble Supreme Court in the matter of Paschimachal Vidyut Vitran Nigam Limited v. Raman Ispat Private Limited [Civil Appeal No. 7976 of 2019 dated July 17, 2023] held that Section 238 of the Insolvency and Bankruptcy Code, 2016 ("IBC") overrides the provisions of the Electricity Act, 2003. 

Facts

M/s. Paschimanchal Vidyut Vitran Nigam Limited ("the Appellant") entered into an agreement with M/s. Raman Ispat Private Limited ("the Respondent") for supply of electricity. The Appellant was raisingelectricity bills to the Respondent, but the dues remained unpaid. The Appellant attached the property of the Respondent vide Order No. 1048, dated January 12,2016 as the total arrears increased to INR 4,32,33,883.

The Tehsildar, Muzaffarnagar vide Order No. 1423F dated January 23, 2016 created a charge on the asset in accordance with Clause 4.3(f)(iv) of the Uttar Pradesh Electricity Supply Code, 2005 and restrained transfer of property by sale, donation or any other mode. During that time the Respondent underwent resolution process under IBC but the same was unsuccessful and the Respondent became subject to liquidation. Accordingly, the liquidator was appointed to carry out the liquidation process. The liquidator was of the view that the assets would be first liquidated and the Appellant would be entitled to pro rata distribution of proceeds along with the other secured creditors.

Aggrieved with liquidator the Appellant had filed case before the National Company Law Tribunal, Allahabad who vide an order ("the Impugned order") set aside an attachment of the property of the Respondent and held that the Appellant can realize dues by participating in the process of liquidation as per IBC.

Aggrieved with the Impugned order, the Appellant filed an appeal before the Hon'ble Supreme Court with a contention that the Appellant is entrusted under the Electricity Act to get clear dues before liquidation.

Issue

Whether the electricity supplier under the Electricity Act will get priority of claims over the provisions of IBC?

Held

The Hon'ble Supreme court of India in Civil Appeal No. 7976 of 2019 held as under:

• Observed that the Hon'ble Supreme Court in the case of Innoventive Industries Ltd. v. ICICI Bank &Anr. [(2017) 8 SCR 33] held that Section 238 of the IBC overrides the provisions of the Electricity Act, 2003 despite the latter containing specific provisions which opens with non-obstante clauses.
• Held that, since supply of electricity has been liberalized in terms of the 2003 Act barring certain segments. Private entities are entitled to hold licenses it is held that in the present case, dues or amounts payable to the Appellant do not fall within the description of Section 53(1)(f) of the IBC. Accordingly, would be covered under the definition of ‘secured operational creditor' and will get dues in the liquidation proceedings as per law.
• Dismissed the appeal and directed the liquidator to decide the claim exercised by Appellant in the manner prescribed under IBC law.

Relevant Provisions

Section 53(1)(e)(i) of IBC

Distribution of Assets

any amount due to the Central Government and the State Government including the amount to be received on account of the Consolidated Fund of India and the Consolidated Fund of a State, if any, in respect of the whole or any part of the period of two years preceding the liquidation commencement date.

Section 238 of IBC

Provisions of this Code to override other laws

The provisions of this Code shall have effect, notwithstanding anything inconsistent therewith contained in any other law for the time being in force or any instrument having effect by virtue of any such law