IBC's Overriding Effect Under S.238 Prevails Over Electricity Act; Auction Purchaser Not Liable For Previous Owner's Dues: Allahabad High Court - 2025-09-18

Covering Law & Justice.

IBC Prevails Over Electricity Act: Auction Purchaser Cannot Be Forced to Pay Old Dues, Rules Allahabad HC

In a significant ruling clarifying the supremacy of the Insolvency and Bankruptcy Code, 2016 (IBC), the Allahabad High Court has held that an auction purchaser of a corporate debtor's assets under liquidation proceedings cannot be compelled to clear the electricity dues of the previous owner to secure a new power connection.

A division bench of Justice Arindam Sinha and Justice Prashant Kumar quashed an order by the Pashchimanchal Vidyut Vitran Nigam Ltd. (PVVNL) that demanded nearly ₹5 crore in arrears from the petitioner, M/S Dharti Agro Industries Pvt. Ltd. The court directed PVVNL to install a new power connection, asserting that the provisions of the IBC, particularly Section 238, have an overriding effect over the Electricity Act, 2003.

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Background of the Case

The petitioner, M/S Dharti Agro Industries, purchased the immovable assets of M/s Chaudhary Ingots Pvt. Ltd. in an e-auction conducted by a liquidator under the IBC. After paying the full bid amount of ₹5.18 crore and obtaining the sale certificate and possession, the petitioner applied for a new electricity connection.

However, PVVNL refused the connection, demanding that the petitioner first clear the outstanding electricity dues of the previous owner, M/s Chaudhary Ingots, amounting to ₹4,92,69,142. Aggrieved, the petitioner initially approached the High Court, which directed PVVNL to consider their representation in light of Supreme Court precedents. When PVVNL rejected the representation and reiterated its demand, the petitioner filed the present writ petition.

Arguments of the Parties

• Petitioner's Counsel, Mr. Ashish Kumar , argued that the IBC is a special, later enactment whose provisions, under Section 238, override any inconsistencies in other laws, including the Electricity Act, 2003, and the U.P. Electricity Supply Code, 2005. He contended that since PVVNL had already submitted its claim to the liquidator, its dues would be settled according to the 'waterfall mechanism' prescribed under Section 53 of the IBC. The petitioner relied on several Supreme Court judgments, including Paschimanchal Vidyut Vitran Nigam Ltd. vs. Raman Ispat Private Ltd. , which established the primacy of the IBC in such conflicts.

• Respondent's Counsel, Mr. Kartikeya Saran , countered that the Electricity Act is a special law governing the supply of electricity and contains its own non-obstante clauses (Sections 173 and 174), giving it primacy. He argued that the U.P. Electricity Supply Code creates a charge on the assets for outstanding dues, making the subsequent purchaser liable. He cited the Supreme Court's decision in K.C. Ninan v. Kerala State Electricity Board to support the claim that utilities can recover arrears from subsequent transferees.

Court's Analysis and Legal Principles Applied

The High Court meticulously analyzed the conflict between the two statutes, both of which contain non-obstante clauses. The central question was which law would prevail.

The bench observed that while the Electricity Act and its corresponding Supply Code allow for the creation of a charge on property for arrears, the IBC was enacted later with the specific objective of creating a consolidated framework for insolvency resolution.

The court highlighted Section 238 of the IBC, which states:

"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.”

Citing the legal maxim Lex Posterior Devogat Priori (a later law repeals an earlier one), the court affirmed that the IBC, being the more recent special statute, would override the Electricity Act.

Distinguishing the K.C. Ninan case, the bench noted that it did not involve proceedings under the IBC. The court emphasized that the present issue was squarely covered by the Supreme Court's rulings in Raman Ispat and Southern Power Distribution Company of Telangana vs. Gopal Agarwal , where it was unequivocally held that power companies cannot deny a connection to an auction purchaser over the dues of a corporate debtor undergoing insolvency.

Pivotal Excerpts from the Judgment

The court made a crucial observation regarding the respondent's participation in the liquidation process:

"It is not in dispute that the respondent PVVNL had already participated in liquidation process and had made their claim with the liquidator, hence, it will not be open for the respondents to recover outstanding dues under the Electricity Act, 2003, specially when IB Code, 2016 has been triggered... The respondents cannot avail two reliefs at the same time."

Reinforcing the IBC's supremacy, the judgment stated:

"A plain reading of Section 238 of IB Code, 2016 clearly shows that it has overriding effect over other Acts. Similar provision is also found in Electricity Act, 2003. Since, IB Code, 2016 is later Act, hence, it will have overriding effect on Electricity Act, 2003."

Final Decision and Implications

Allowing the writ petition, the Allahabad High Court set aside the impugned order dated May 15, 2025, and directed PVVNL to install the power connection at the petitioner's premises. The court clarified that PVVNL remains free to pursue its claim for outstanding dues through the liquidation process under the IBC.

This judgment provides critical certainty for auction purchasers under the IBC, reinforcing the "clean slate" principle that is fundamental to the insolvency resolution framework. It ensures that new owners are not burdened with the legacy liabilities of the erstwhile corporate debtor, thereby encouraging participation in auctions and facilitating the successful revival or sale of distressed assets.