IBC overrides the provisions of the Electricity Act, 2003

Cause Title : Paschimanchal Vidyut Vitran Nigam Ltd. vs Raman Ispat Private Limited & Ors., Civil Appeal Nos. 7976 Of 2019, Supreme Court Of India

Date of Judgment/Order : 17/7/2023

Corum : S. Ravindra Bhat, & Dipankar Datta, J

Citied: 

1. Board of Trustees, Port of Mumbai v. Indian Oil Corporation, 1998 (2) SCR 774
2. State Tax Officer v. Rainbow Papers Ltd., 2022 (13) SCR 808
3. Jitender Nath Singh v. Official Liquidator & Ors., 2012 (13) SCR 339
4. ICICI Bank Ltd. v. Sidco Leathers Ltd., 2006 Supp (1) SCR 528
5. Jalgaon Janta Shakari Bank Ltd. v. Joint Commissioner of Sales Tax, Nodal 9, Mumbai & Anr., 2022 SCC OnLine Bom 1767.
6. The West Bengal State Electricity Distribution Company Limited v. Sri Vasavi Industries Limited & Anr., 2022 SCC Online Cal 1918
7. Union of India & Ors. v. Shah Goverdhan L. Kabra Teachers' College, (2002) Supp (3) SCR 220. 14 UCO Bank & Anr. v. Dipak Debbarma & Ors., (2016) (11) SCR 723
8. Innoventive Industries Ltd. v. ICICI Bank & Anr., (2017) 8 SCR 33
9. Swiss Ribbons (P) Ltd. v. Union of India (2019) 4 SCC 17
10. K. Shashidhar v. Indian Overseas Bank, 2019 (3) SCR 845
11. Committee of Creditors of Essar Steel India Limited v. Satish Kumar Gupta & Ors., 2019 (16) SCR 275
12. Moser Baer Karamchari Union thr. President Mahesh Chand Sharma v. Union of India & Ors., 2023 SCC OnLine SC 547
13. K.C. Ninan v. Kerala State Electricity Board, 2023 SCC Online SC 603
14. Shrikant v. Vasantrao & Ors ., 2006 (1) SCR 496
15. Municipal Commissioner of Dum Dum Municipality & Ors. v. Indian Tourism Development Corporation & Ors., 1995 (5) SCC 251
16. Member, Board of Revenue v. Anthony Paul Benthall (1955) 2 SCR 842
17. Brihan Mumbai Mahanagarpalika & Anr. v. Willington Sports Club & Ors., (2013) (16) SCR 216
18. Sundaresh Bhatt, Liquidator of ABG Shipyard v. Central Board of Indirect Taxes and Customs, 2022 SCC Online SC 1101
19. Duncans Industries Ltd. v. AJ Agrochem, (2019) 9 SCC 725
20. CIT v. Monnet Ispat & Energy Ltd, (2018) 18 SCC 786
21. Ghanashyam Mishra & Sons (P) Ltd. v. Edelweiss Asset Reconstruction Co. Ltd, [2021] 13 SCR 737
22. Jagmohan Bajaj v. Shivam Fragrances Private Limited, 2018 SCC OnLine NCLAT 413

Background

The litigants entered into an agreement for supply of electricity which provided that outstanding electricity dues would constitute a ‘charge’ on its assets.

When the Corporate Debtor (CD) defaulted, PVVNL attached the corporate debtor’s properties 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.

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.

As per the petition of the Liquidator, NCLT and subsequently NCLAT held that PVVNL fell within the definition of ‘operational creditor’, which could realize its dues in the liquidation process in accordance with the law and directed 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. Hence this appeal.

PVVNL, submitted that Sections 173 and 174 of the Electricity Act, 2003 had an overriding effect on all other laws except Consumer Protection Act, 1986; the Atomic Energy Act, 1962; and the Railway Act, 1989 and urged that provisions of the 2003 Act (Sections 42, 45 and 56) and the 2005 Code (Clauses 4.3 and 6.15), prescribed the mechanism for recovery of electricity charges. Thus, the provisions of IBC and the priority of claims under it in liquidation proceedings, were separate and applied in respect of other amounts available for distribution, after the recovery of electricity dues were permitted under the 2003 Act and 2005 Code.

The respondents submitted that electricity being government dues did not enjoy any priority as per the Waterfall mechanism under IBC.

Judgment

The Supreme Court held that :-

1) Section 238 of the IBC overrides the provisions of the Electricity Act, 2003 despite the latter containing two specific provisions which open with non-obstante clauses (i.e., Section 173 and 174). 

2) The creation of a charge need not necessarily be based on an express provision of the 2003 Act or plenary legislation, but could be created by properly framed regulations authorized under the parent statute. By virtue of Section 181(2)(x) of the 2003 Act, State Commissions are empowered to frame regulations. Section 50 empowers the State Commissions to frame the “Electricity Supply Code” to provide for recovery of electricity charges, intervals for billing of electricity charges, disconnection of supply of electricity for non-payment, etc. That by virtue of Clause 4.3(f)(iv) of the Supply Code, read with the stipulations in the agreement between the parties, a charge was created on the assets of the corporate debtor.

3) The expression “government dues” is not defined in the IBC - it finds place only in the preamble. However, what constitutes such dues is spelt out in the ‘waterfall mechanism’ under Section 53(1)(e), which inter alia states that, “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 the State” ranks lower in priority to the class of creditors described in Clauses (a) to (d) of Section 53(1). Thus, there exists a separate enumeration or specification of the Central Government and State Government dues, as a class apart from other creditors, including creditors who may have secured interest (in respect of which amounts may be payable to them). The repeated reference of lowering of priority of debts to the government, on account of statutory tax, or other dues payable to the Central Government or State Government, or amounts payable into the Consolidated Fund on account of either government, in the various reports which preceded the enactment of the IBC, as well as its Preamble, means that these dues are distinct and have to be treated as separate from those owed to secured creditors. The Central Government and State Government are defined by the General Clauses Act, 1897. The former is defined by Section 3(8), 32 and latter by Section 3 (60).

4) The specific mention of other class of creditors whose dues are statutory, such as dues payable to workmen or employees, “the provident fund, the pension fund, the gratuity fund” under Section 36(4), which excludes these enumerated amounts from the liquidation, especially clarifies that not all dues owed under statute are treated as ‘government’ dues. In other words, dues payable to statutory corporations which do not fall within the description “amounts due to the central or state government” such as for instance amounts payable to corporations created by statutes which have distinct juristic entity but whose dues do not constitutegovernment dues payable or those payable into the respective Consolidated Funds stand on a different footing.