A judgement rendered by the Supreme Court in Paschimanchal Vidyut Vitran Nigam Ltd. v. Raman Ispat Private Limited & Ors clarified that the dues payable to secured creditors should be given priority over Electricity Dues. The Supreme Court also held that Section 238 of the Insolvency and Bankruptcy Code [“IBC”] overrides the provisions of the Electricity Act. Section 238 of IBC states that the Code shall prevail over any other provision or law contrary or inconsistent with any of its provisions.

BRIEF FACTS:

• In the year 2010, Paschimanchal Vidyut Vitran Nigam Limited (PVVNL) entered into an agreement with Raman Ispat Private Limited (Corporate Debtor) for the supply of electricity.
• In January of the year 2016, the properties of the Corporate Debtor were attached since the electricity dues remained unpaid.
• On 23rd January 2016, Tehsildar, Muzaffarnagar restrained transfer of property by sale, donation or any other mode and created a ‘charge’ on the properties of the Corporate Debtor.
• On 11th April 2017, Corporate Debtor got admitted into Corporate Insolvency Resolution Process (CIRP) by way of an Application under Section 10 application of the IBC.
• On 31st January 2018, a liquidation order was passed by the Adjudicating Authority.
• On 05th March 2018, the District Collector issued notice for recovery of outstanding dues, by the auction of movable and immovable properties on default against the final bill dated 27 th January 2017.
• The liquidator filed an application on the grounds that unless the attachment orders of the District Collector 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. Thereafter, Adjudicating Authority directed District Magistrate and Tehsildar, Muzaffarnagar to immediately release the attached property so as to enable the sale of property and distribution in accordance with the provisions of IBC and held that PVVNL will be an Operational Creditor.
• PVVNL preferred an appeal before NCLAT but the same came to be dismissed and NCLAT directed the immediate release of the attached property so as to enable the sale of the said property, and after realization 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 an Operational Creditor, which could realize its dues in the liquidation process in accordance with the law.

In appeal before the Apex Court, the PVVNL contention was that the Electricity Act is a special enactment, and would prevail over the IBC, which is a later general law, dealing with insolvency. Reliance was placed on State Tax Officer v. Rainbow Papers Ltd. (2022) SCC OnLine SC 1162. While on the other hand, the respondent-liquidator contended that the provisions of the IBC would prevail and have an overriding effect.

ANALYSIS OF THE SUPREME COURT:
The Court highlighted the distinction between the IBC’s waterfall mechanism (under Section 53 of the IBC), which prioritizes different classes of creditors, and other state enactments. While state acts may create charges on amounts due, the IBC treats secured creditors separately, indicating Parliament’s intention to give them a higher priority. The Court emphasized that when a statute uses different expressions, they cannot be construed as having the same meaning, citing previous cases where the IBC was given primacy over other acts. In terms of the reliance placed by PVVNL on the decision in Rainbow Papers, the Court noted that Rainbow Papers dealt with a case relating to the resolution process and not the liquidation process, and therefore, the judgment in Rainbow Papers had to be confined to the facts of that case. In conclusion, it was held that the provisions of Section 238 of the IBC override the provisions of the Electricity Act, 2003 despite the latter containing two specific provisions which open with non-obstante clauses (Section 173 and 174).

By - Prachi Pandey