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Insolvency and Bankruptcy Code, 2016 – ss.238, 53 –Overriding effect of s.238 – Distribution of assets u/s.53 – Duespayable to secured creditors vis-à-vis Central or State Government–Held: s.238, IBC overrides the provisions of the Electricity Act, 2003despite the latter containing two specific provisions which openwith non-obstante clauses (ss.173 and 174) – Provisions of the IBCtreat the dues payable to secured creditors at a higher footing thandues 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 ofassets – “government dues” – Corporate debtor entered into anagreement with appellant-PVVNL for supply of electricity – PVVNLraised bills for supply of electricity to the corporate debtor butdues remained unpaid – PVVNL attached the corporate debtor’sproperties – The Tehsildar, restrained transfer of property by sale,donation or any other mode, and also created a charge on theproperties – Corporate debtor underwent resolution process whichwas not successful and became subject to liquidation – DistrictCollector issued notice for recovery of outstanding dues – NCLTdirected Tehsildar to immediately release property in favour of theliquidator of the corporate debtor for enabling its sale, and afterrealisation of its value, for distributing the proceeds in accordancewith the IBC – Appeal rejected by NCLAT – PVVNL argued thatrights of electricity suppliers like PVVNL were not subordinate andsubject to the ‘priority of claims’ mechanism under the IBC – Pleaof the liquidator that dues owed to PVVNL were technically owed tothe “government”, and thus occupied a lower position in the orderof priority of clearance – Held:”government dues” is not definedin the IBC – It finds place only in the preamble – However, what 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 CentralGovernment and the State Government including the amount to bereceived on account of the Consolidated Fund of India and theConsolidated Fund of the State” ranks lower in priority to the classof creditors described in Clauses (a) to (d) of s.53(1) – There existsa separate enumeration or specification of the Central Governmentand State Government dues, as a class apart from other creditors,including creditorswho may have secured interest (in respect of whichamounts may be payable tothem) – These dues are distinct and haveto 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 andpublic – Therefore, dues or amounts payable to PVVNL do not fallwithin the description of s.53(1)(f) – Uttar Pradesh Electricity SupplyCode, 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 ofcorporate debtor – Circumstances in which such a ‘charge’ couldbe constituted in law – Held: In K.C. Ninan v. Kerala State ElectricityBoard, Supreme Court examined such circumstances and held thatthe creation of a charge need not necessarily be based on an expressprovision of the 2003 Act or plenary legislation, but could be createdby properly framed regulations authorized under the parent statute– Thus, in the present case, PVVNL rightly argued that by virtue ofClause 4.3(f)(iv) of the Supply Code, read with the stipulations inthe agreement between the parties, a charge was created on theassets of the corporate debtor – Order of the NCLT also revealsthat this position was accepted – This is evident from the order ofthe NCLAT which clarified that PVVNL also came under thedefinition of ‘secured operational creditor’ as per law – This findingwas affirmed by the impugned order – Therefore, the conclusionthat PVVNL is a secured creditor cannot be disputed – Electricity.Insolvency and Bankruptcy Code, 2016 – ss.52, 53(1)(e), (f)– Government debts, operational debts vis-à-vis dues owed to unsecured financial creditors–Rationale for placing securedcreditors who relinquish their security, higher in priority– Held:The priority of claims, indicated in the hierarchy of preferences,under the waterfall mechanism accords government debts [clause(e)] and operational debts [clause (f)] lower priority than duesowed to unsecured financial creditors – Further, debts owed to asecured creditor, whenever such secured creditor “has relinquishedsecurity in the manner set out in s. 52” receive a fairly high priority(immediately after insolvency resolution process costs) – When thesecured creditor does not relinquish security, the priority of claim islower [s.53(1)(e)(ii)] in respect of “any amount unpaid followingthe enforcement of security interest” – Amounts due to thegovernment (i.e., payable into the Consolidated Fund of India orConsolidated Fund of a State) are ranked in the same manner asthose of secured creditors who do not relinquish their security interest[s.53(1)(e)(ii)]– Aforesaid rationale discussed.Electricity Act, 2003 – ss.50, 56, 181(2)(x) – Uttar PradeshElectricity Supply Code, 2005 – Clause 4.3 (f) (iv), Clause 6.15 –Recovery mechanism under– Discussed– Uttar Pradesh GovernmentElectrical Undertakings (Dues Recovery) Act, 1958.Insolvency and Bankruptcy Code, 2016 – s.53(1)(f) –Constitution of India – Article 265 – “government dues” – Held:Dues payable or requiring to be credited to the Treasury, such astax, tariffs, etc. which broadly fall within the ambit of Article 265are ‘government dues’ and therefore covered by s.53(1)(f) – Whereas,dues payable to statutory corporations which do not fall within thedescription “amounts due to the central or state government” forinstance amounts payable to corporations created by statutes whichhave distinct juristic entity but whose dues do not constitutegovernment dues payable or those payable into the respectiveConsolidated Funds stand on a different footing.Companies Act, 2013 – ss.77, 78, 3(31) – Plea of the liquidatorthat without registration of charge u/s.77, the same wasunenforceable under liquidation proceedings – Held: s.78 enactsthat when a company whose property is subject to charge, fails toregister it, the charge holder (or the person entitled to the chargeover the company’s assets) can seek its registration – s.3(31) defines“security interest” in the widest terms – Liquidator cannot urge this aspect at this stage, because of the concurrent findings of the NCLTand the NCLAT that PVVNL is a secured creditor – Further, on facts,it is not appropriate to rule on the submissions of the liquidator visà-vis the fact of non-registration of charges u/s.77.Interpretation of Statutes –Insolvency and Bankruptcy Code,2016 – Gujarat Value Added Tax Act, 2003–Held: When anenactment uses two different expressions, they cannot be construedas having the same meaning – Reliance on Rainbow Papers case isof no avail to the appellant and that judgment is to be confined toits own facts. |
