1. Electricity supply agreement creating a charge on assets — Attachment of properties for unpaid dues — Liquidation of corporate debtor — Dispute over priority of claims under IBC. (Para 1 , 2 , 3 , 4 , 5 )
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2023 Supreme(SC) 640
SUPREME COURT OF INDIA
S. RAVINDRA BHAT, DIPANKAR DATTA, JJ.
Paschimanchal Vidyut Vitran Nigam Ltd. – Appellant
Versus
Raman Ispat Private Limited and Others – Respondents
Civil Appeal No. 7976 of 2019
Decided On : 17-07-2023
Advocates appeared:
For the Appellant(s) : Mr. Pradeep Misra, AOR
For the Respondent(s): Ms. Purti Gupta, AOR Mr. Arvind Kumar Gupta, Adv. Ms. Purti Gupta, Adv. Ms. Henna George, Adv.
For the Appellant(s) : Mr. Pradeep Misra, AOR
For the Respondent(s): Ms. Purti Gupta, AOR Mr. Arvind Kumar Gupta, Adv. Ms. Purti Gupta, Adv. Ms. Henna George, Adv.
Important Points
The IBC overrides the Electricity Act, 2003. A distribution licensee (statutory corporation) is a secured operational creditor, not a government creditor. Therefore, recovery of electricity dues during liquidation must follow the IBC's waterfall mechanism under Section 53, rather than independent recovery mechanisms under the Electricity Act.
Subject
Insolvency - Liquidation
Act Referred
COMPANIES ACT: S.125, S.326, S.77
ELECTRICITY ACT: S.173, S.174
INSOLVENCY AND BANKRUPTCY CODE: S.3, S.30, S.31, S.33, S.52, S.53, S.60, S.14, S.188, S.238
TRANSFER OF PROPERTY ACT: S.48
ELECTRICITY ACT: S.173, S.174
INSOLVENCY AND BANKRUPTCY CODE: S.3, S.30, S.31, S.33, S.52, S.53, S.60, S.14, S.188, S.238
TRANSFER OF PROPERTY ACT: S.48
Headnote
(A) Electricity Act, 2003 - Sections 173 and 174 - Insolvency and Bankruptcy Code, 2016 - Sections 52 and 53 - Appeal against NCLAT order regarding attachment of corporate debtor's property in insolvency liquidation - The appellant claimed precedence for electricity dues over other creditors based on the provisions of the Electricity Act as a special law. The court recognized PVVNL as a 'secured operational creditor' under the IBC and upheld the lower court's decision that classified its claims per the insolvency law framework, consequently denying the appellant's claim for priority over secured and operational creditors. (Paras 35, 43, 44)
Facts of the case:
The appellant sought to enforce dues from a corporate debtor which faced liquidation proceedings. Outstanding dues totaling Rs. 4,32,33,883 were contested as the distribution priority was determined under the IBC, which categorized dues owed to creditors.
Findings of Court:
The court affirmed that electricity dues do not carry higher priority than secured creditors’ dues under the insolvency framework.
Issues: The key questions were whether the Electricity Act supersedes the IBC concerning dues priority in liquidation, and if the appellant was correctly classified as a secured creditor.
Ratio Decidendi: The court emphasized that the IBC provides a comprehensive framework for prioritizing creditor claims in liquidation, which must take precedence over the provisions of the Electricity Act. The court further reaffirmed that the obligations of the IBC are to be followed despite the specific provisions of other laws.
Result: Appeal dismissed.
Facts of the case:
The appellant sought to enforce dues from a corporate debtor which faced liquidation proceedings. Outstanding dues totaling Rs. 4,32,33,883 were contested as the distribution priority was determined under the IBC, which categorized dues owed to creditors.
Findings of Court:
The court affirmed that electricity dues do not carry higher priority than secured creditors’ dues under the insolvency framework.
Issues: The key questions were whether the Electricity Act supersedes the IBC concerning dues priority in liquidation, and if the appellant was correctly classified as a secured creditor.
Ratio Decidendi: The court emphasized that the IBC provides a comprehensive framework for prioritizing creditor claims in liquidation, which must take precedence over the provisions of the Electricity Act. The court further reaffirmed that the obligations of the IBC are to be followed despite the specific provisions of other laws.
Result: Appeal dismissed.
Legal Category Hierarchy
- insolvency and bankruptcy law
- energy law
- corporate law
Table of Contents
2. Primacy of Electricity Act over IBC — Classification of electricity dues as security interests versus operational debts — Priority of government dues in liquidation waterfall. (Para 6 , 7 , 8 , 9 , 10 , 11 , 12 , 13 , 14 , 15 , 16 , 17 , 18 )
3. IBC's unified insolvency regime and waterfall mechanism — Distinction between government dues and dues of statutory corporations — Overriding effect of IBC over special laws. (Para 19 , 20 , 21 , 22 , 23 , 24 , 25 , 26 , 27 , 28 , 29 , 30 , 31 , 32 , 33 , 34 , 35 , 36 , 37 , 38 , 39 , 40 , 41 , 42 , 43 , 44 , 45 , 46 , 47 , 48 , 49 , 50 , 51 , 52 , 53 , 54 , 55 )
4. Section 238 of IBC overrides the Electricity Act; statutory corporations are distinct from government for priority purposes; secured operational creditors follow the IBC waterfall mechanism. (Para 43 , 47 , 52 )
5. Appeal dismissed — Liquidator directed to decide the claim of the secured operational creditor in accordance with law. (Para 57 , 58 )
6. Does the Electricity Act, 2003 override the Insolvency and Bankruptcy Code (IBC)?
No. Section 238 of the IBC provides an overriding effect over other laws, including the Electricity Act, 2003. The IBC is a comprehensive code for insolvency and bankruptcy that prevails over special laws regarding the recovery of dues during liquidation. (Para 52 )
7. Are dues of a state electricity distribution company treated as government dues under the IBC waterfall mechanism?
No. Statutory corporations with distinct juristic entities are not considered government under Section 53(1)(e). Their dues are treated based on their status as financial, operational, or secured creditors, rather than being relegated to the lower priority assigned to government dues. (Para 44 , 45 , 46 , 47 )
8. Can electricity dues constitute a security interest under the IBC?
Yes. A charge on assets created through properly framed regulations authorized under a parent statute, combined with an express agreement between the parties, can constitute a security interest, thereby classifying the service provider as a secured creditor. (Para 42 , 43 )
9. How does the IBC waterfall mechanism treat secured creditors who choose not to relinquish their security?
Secured creditors who opt to realize their security interest rather than relinquish it are ranked lower in priority for any unpaid balance, falling under Section 53(1)(e)(ii) of the IBC, as they are presumed to have recovered most dues outside the liquidation proceedings. (Para 34 , 35 , 36 )
JUDGMENT :
S. RAVINDRA BHAT, J.
1. The appellant Paschimanchal Vidyut Vitran Nigam Limited (hereinafter “PVVNL”) is aggrieved by an order of the National Company Law Appellate Tribunal (hereinafter, “NCLAT”)1 [Company Appeal (AT) (Insolvency) No. 639 of 2018, dated 15.05.2019] which rejected its appeal against an order of the National Company Law Tribunal, Allahabad (hereinafter “NCLT”/“Adjudicating Authority”)2 [C.A. No. 88/ALD/2018 in CP No. (IB) 23/ALD/2017, dated 21.08.2018] which allowed an application directing the District Magistrate and Tehsildar, Muzaffarnagar to immediately release property (which was previously attached at the request of the appellant) in favour of the liquidator of the respondent Raman Ispat Pvt. Ltd. (hereinafter “corporate debtor”) for enabling its sale, and after realisation of its value, for distributing the proceeds in accordance with the provisions of the Insolvency and Bankruptcy Code, 2016 (hereinafter “IBC”/“Code”).
I. FACTS
2. The parties had entered into an agreement on 11.02.2010 for supply of electricity. Clause 5 of the agreement provided that:
“The outstanding dues will be a charge on the assets of the company. Before sale is made, the outstanding dues will be cleared and (in) the alternative the deed to agreements/sale will specifically mention the outstanding dues and the method of its payment.”
3. PVVNL raised bills for supply of electricity to the corporate debtor from time to time. Since the dues remained unpaid, PVVNL attached the corporate debtor’s properties by Order No. 1048, dated 12.01.2016. The Tehsildar, Muzaffarnagar by Order No. 1423F dated 23.01.2016, restrained transfer of property by sale, donation or any other mode, and also created a charge on the properties. The corporate debtor initially underwent resolution process under the IBC, however that process was not successful. It therefore became subject to liquidation.
4. Under the final bill dated 27.01.2017, the total arrears due were Rs. 4,32,33,883/-. Of this, the District Collector issued notice for recovery of outstanding dues to the tune of Rs. 2,50,14,080/- by auction of movable and immovable properties located at Khasara No. 0.4710, on 05.03.2018. The liquidator alleged that unless the attachment orders of the District Collector, Muzaffarnagar and Tehsildar, Muzaffarnagar were set aside by the NCLT, no buyer would purchase the property of the corporate debtor due to uncertainty about the authority of the liquidator to sell the property. The liquidator also took the plea that PVVNL’s claim would be classified in order of priority prescribed under Section 53 of the IBC and PVVNL would be entitled to pro rata distribution of proceeds along with the other secured creditors from sale of liquidation assets.
5. The liquidator’s position ultimately led the NCLAT to direct the District Magistrate and Tehsildar, Muzaffarnagar to immediately release the attached property in its favour so as to enable sale of the property, and after realisation of the property’s value, to ensure its distribution in accordance with the relevant provisions of the IBC. The NCLAT also endorsed NCLT’s reasoning that PVVNL fell within the definition of ‘operational creditor’ which could realize its dues in the liquidation process in accordance with the law.
II. PVVNL’S ARGUMENTS
6. Mr. Pradeep Mishra, learned advocate for PVVNL, submitted that Sections 173 and 174 of the ELECTRICITY ACT , 2003 (hereinafter, “2003 Act”) had an overriding effect on all other laws except Consumer Protection Act, 1986; the Atomic Energy Act, 1962; and the Railway Act, 1989. Being a special law relating to all aspects of electricity - generation, transmission, distribution and adjudication of disputes - it had primacy over all other laws, including the IBC, which was a ‘general’ law dealing with corporate insolvency implemented much later. In terms of the 2003 Act, and the regulations framed under it, including the Uttar Pradesh Electricity Supply Code, 2005 (hereina
