Supreme Court Confirms that IBC Overrides Electricity Act

In a recent decision[1], the Supreme Court held that Section 238 of the Insolvency and Bankruptcy Code, 2016 overrides provisions of the Electricity Act, 2003.

The appellant, Paschimanchal Vidyut Vitran Nigam Ltd. and the respondent/ corporate debtor, Raman Ispat Private Limited had entered into an agreement for the supply of electricity in the year 2010. Owing to pending dues, the properties of the corporate debtor were attached to prevent alienation thereof.

However, the corporate debtor became subject to liquidation since the resolution process under IBC was unsuccessful. Thereafter, an application was filed before the National Company Law Tribunal (NCLT), Allahabad, and it was insisted by the liquidator that the attachment orders would dissuade buyers from purchasing the corporate debtor’s property. This application was allowed by the NCLT which directed the immediate release of the attached property. The Tribunal took this decision to ensure that the property was sold, and the proceeds were distributed as per provisions of the IBC. This decision was then challenged before the National Company Law Appellate Tribunal (NCLAT), but the appeal was rejected.

Aggrieved, the appellant approached the Supreme Court, urging that the provisions of the 2003 Act, a “special Act” would prevail over those of the “general” IBC. It was added that the mechanism provided under the said Act along with the Uttar Pradesh Electricity Supply Code, 2005 had to be implemented for the recovery of electricity dues, which constituted a first charge on the property.

On the other hand, the corporate debtor’s liquidator contended that the IBC was a special law dealing with the subject matter of insolvency, bankruptcy and winding up of companies. Section 238 of the Code was cited to highlight the Code’s overriding nature.

Referring to various provisions of the Code, the court explained the insolvency resolution process and the order of priority for asset distribution as per the waterfall mechanism. After perusal of reports of various committees along with the Code’s preamble, the court remarked that the IBC’s provisions were “carefully thought out” and balanced the creditors’ interests in liquidation proceedings. Further, the court relied on its judgment in Sundaresh Bhatt, Liquidator of ABG Shipyard vs. Central Board of Indirect Taxes and Customs[2] wherein it was held that recovery of dues through sale or confiscation could not be initiated once a moratorium was imposed under the IBC. To this extent, the provisions of the IBC were held to prevail over those of the Customs Act, 1962.

In the present case, the court referred to several other case laws before finally concluding that Section 238 of the IBC overrides the provisions of the Electricity Act, 2003. Accordingly, the court dismissed the appeal and directed the liquidator to decide upon the appellant’s claim and complete the process within 10 weeks from the date of the order.

[1] Paschimanchal Vidyut Vitran Nigam Ltd. vs. Raman Ispat Private Limited & Ors. (CA No.7976 of 2019)

[2] 2022 SCC Online SC 1101