Dues Payable to Secured Creditors are at Higher Footing Than Electricity Dues: Supreme Court [Read Judgment]

The Supreme Court has held that dues payable to secured creditors are at a higher footing than electricity dues and ruled that Section 238 of the Insolvency and Bankruptcy Code overrides the provisions of the Electricity Act, 2003.

The appellant Paschimanchal Vidyut Vitran Nigam Limited (“PVVNL”) challenged the order of the National Company Law Appellate Tribunal (“NCLAT”)  which rejected its appeal against an order of the National Company Law Tribunal, Allahabad (“NCLT”/ “Adjudicating Authority”),  which allowed an application directing the District Magistrate and Tehsildar, Muzaffarnagar to immediately release property in favour of the liquidator of the respondent Raman Ispat Pvt. Ltd. (“corporate debtor”) for enabling its sale, and after realisation of its value, for distributing the proceeds by the provisions of the Insolvency and Bankruptcy Code, 2016 (“IBC” / “Code”).

PVVNL raised bills for the supply of electricity to the corporate debtor from time to time. Since the dues remained unpaid, PVVNL attached the corporate debtor’s properties. The corporate debtor initially underwent a resolution process under the IBC, however, that process was not successful. It, therefore, became subject to liquidation. 

The liquidator’s position ultimately led the NCLAT to direct the District Magistrate and Tehsildar, Muzaffarnagar to immediately release the attached property in its favour to enable the sale of the property, and after realisation of the property’s value, to ensure its distribution by the relevant provisions of the IBC. The NCLAT also endorsed NCLT’s reasoning that PVVNL fell within the definition of ‘operational creditor’, which could realize its dues in the liquidation process by the law.

It was observed that the hierarchy or order of priority thus accords government debts [clause (e)] and operational debts [clause (f)] lower priority than dues owed to unsecured financial creditors as per section 53 of the IBC.

While dismissing the appeal, the bench comprising Justices S. Ravindra Bhat and Dipankar Datta directed the liquidator to decide the claim exercised by PVVNL in the manner required by law.

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