Insolvency Law Will Prevail Over Electricity Act, Says Supreme Court

The Insolvency and Bankruptcy Code overrides the provisions of the Electricity Act, 2003, the Supreme Court said.

It said so in an appeal filed by Paschimanchal Vidyut Vitran Nigam Ltd. against an order of the National Company Law Appellate Tribunal. The company is a subsidiary of Uttar Pradesh Power Corp. Ltd.

The dispute pertained to unpaid electricity dues that Raman Ispat Pvt. owed to Paschimanchal Vidyut. This led PVVNL to get an order of attachment of Raman Ispat’s property in its favour.

Subsequently, Raman Ispat went into liquidation, and its liquidator argued before the tribunal that the attached property be released immediately, as whatever dues are owed to PVVNL will be distributed in accordance with the IBC.

The NCLAT agreed with the liquidator’s view and ordered the release of the property with immediate effect.

This prompted PVVNL to approach the apex court. It argued before the court that the Electricity Act exercised primacy over IBC and that it could opt to stay out of the liquidation process and recover its dues independently under the act.

However, the top court was not inclined to accept this argument and held that provisions of the Electricity Act cannot have primacy over the IBC.

The court went on to explain the waterfall mechanism, as envisaged under the IBC, for recovering dues from a company in liquidation. In essence, the mechanism lists out a hierarchy of the order of distribution of assets for a company under liquidation.

The court explained that firstly, the costs of the insolvency settlement process and liquidation will be taken care of, followed by workmen's dues for the 24 months before the date of liquidation and debts owed to a secured creditor if that creditor has relinquished the security.

This will be followed by wages and any unpaid dues owed to workers who were not workers for 12 months before the date of liquidation, and subsequently, the money due to unsecured creditors will be paid.

After all this is taken care of, the central government's dues and dues owed to secured creditors find their place in the hierarchy.

The court concluded by saying that PVVNL, which is undisputedly a secured creditor in this case, is entitled to its dues in accordance with the IBC mechanism, and the same shall be adjudicated upon within 10 weeks.