PASCHIMANCHAL VIDYUT VITRAN NIGAM LTD. versus RAMAN ISPAT PRIVATE LIMITED & ORS.

Citation: [2023] 10 S.C.R. 1221 · Decided: 17-07-2023 · Supreme Court of India · Bench: S. RAVINDRA BHAT · Disposal: Dismissed

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Judgment (excerpt)

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1221
PASCHIMANCHAL VIDYUT VITRAN NIGAM LTD.
v.
RAMAN ISPAT PRIVATE LIMITED & ORS.
(Civil Appeal Nos. 7976 of 2019)
JULY 17, 2023
[S. RAVINDRA BHAT AND DIPANKAR DATTA, JJ.]
Insolvency and Bankruptcy Code, 2016 – ss.238, 53 –
Overriding effect of s.238 – Distribution of assets u/s.53 – Dues
payable to secured creditors vis-à-vis Central or State Government–
Held: s.238, IBC overrides the provisions of the Electricity Act, 2003
despite the latter containing two specific provisions which open
with non-obstante clauses (ss.173 and 174) – Provisions of the IBC
treat the dues payable to secured creditors at a higher footing than
dues payable to Central or State Government– Electricity Act, 2003
– ss.173, 174.
Insolvency and Bankruptcy Code, 2016 – s.53(1)(a)-(f) –
Waterfall mechanism – Priority of claims – Order of distribution of
assets – “government dues” – Corporate debtor entered into an
agreement with appellant-PVVNL for supply of electricity – PVVNL
raised bills for supply of electricity to the corporate debtor but
dues remained unpaid – PVVNL attached the corporate debtor’s
properties – The Tehsildar, restrained transfer of property by sale,
donation or any other mode, and also created a charge on the
properties – Corporate debtor underwent resolution process which
was not successful and became subject to liquidation – District
Collector issued notice for recovery of outstanding dues – NCLT
directed Tehsildar to immediately release property in favour of the
liquidator of the corporate debtor for enabling its sale, and after
realisation of its value, for distributing the proceeds in accordance
with the IBC – Appeal rejected by NCLAT – PVVNL argued that
rights of electricity suppliers like PVVNL were not subordinate and
subject to the ‘priority of claims’ mechanism under the IBC – Plea
of the liquidator that dues owed to PVVNL were technically owed to
the “government”, and thus occupied a lower position in the order
of priority of clearance – Held:”government dues” is not defined
in the IBC – It finds place only in the preamble – However, what
[2023] 10 S.C.R. 1221 : 2023 INSC 625
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SUPREME COURT REPORTS
[2023] 10 S.C.R.
constitutes such dues is spelt out in the ‘waterfall mechanism’ u/
s.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 s.53(1) – There exists
a separate enumeration or specification of the Central Government
and State Government dues, as a class apart from other creditors,
including creditorswho may have secured interest (in respect of which
amounts may be payable tothem) – These dues are distinct and have
to be treated as separate from those owed to secured creditors –
Further, PVVNL undoubtedly has government participation however,
that does not render it a government or a part of the ‘State Government’
– Its functions can be replicated by other entities, both private and
public – Therefore, dues or amounts payable to PVVNL do not fall
within the description of s.53(1)(f) – Uttar Pradesh Electricity Supply
Code, 2005 – General Clauses Act, 1897 – ss.3(8), 3(60).
Insolvency and Bankruptcy Code, 2016 – Scheme of –
Discussed.
Electricity Act, 2003 – Uttar Pradesh Electricity Supply Code,
2005 – Outstanding electricity dues, if a ‘charge’ on assets of
corporate debtor – Circumstances in which such a ‘charge’ could
be constituted in law – Held: In K.C. Ninan v. Kerala State Electricity
Board, Supreme Court examined such circumstances and held that
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
– Thus, in the present case, PVVNL rightly argued 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 – Order of the NCLT also reveals
that this position was accepted – This is evident from the order of
the NCLAT which clarified that PVVNL also came under the
definition of ‘secured operational creditor’ as per law – This finding
was affirmed by the impugned order – Therefore, the conclusion
that PVVNL is a secured creditor cannot be dis

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