Case Note & Summary
The appellant, Paschimanchal Vidyut Vitran Nigam Ltd. (PVVNL), a state electricity distribution company, entered into an electricity supply agreement with the corporate debtor, Raman Ispat Pvt. Ltd., on 11.02.2010. Clause 5 of the agreement provided that outstanding dues would be a charge on the assets of the company. PVVNL raised bills for electricity supplied, but the dues remained unpaid. Consequently, PVVNL attached the corporate debtor's properties by Order No. 1048 dated 12.01.2016, and the Tehsildar, Muzaffarnagar, by Order No. 1423F dated 23.01.2016, restrained transfer of property and created a charge. The corporate debtor underwent a resolution process under the Insolvency and Bankruptcy Code, 2016 (IBC), which failed, leading to liquidation. The final bill dated 27.01.2017 showed total arrears of ₹4,32,33,883/-, and the District Collector issued a notice for recovery of ₹2,50,14,080/- by auction. The liquidator alleged that the attachment orders hindered the sale of property and sought their setting aside, arguing that PVVNL's claim would be classified under Section 53 of the IBC and that PVVNL would be entitled to pro rata distribution along with other secured creditors. The NCLT allowed the liquidator's application, directing the District Magistrate and Tehsildar to release the attached property to the liquidator for sale and distribution of proceeds under the IBC. The NCLAT upheld this order. The Supreme Court, however, allowed PVVNL's appeal, holding that the statutory charge created under the Electricity Act, 2003 and the contractual terms survives the moratorium under Section 14 of the IBC, and PVVNL is entitled to be treated as a secured creditor in the liquidation. The Court set aside the NCLAT order and directed the liquidator to treat PVVNL as a secured creditor and deal with its claim in accordance with Section 53 of the IBC.
Headnote
A) Insolvency Law - Moratorium - Statutory Charge - Section 14, Insolvency and Bankruptcy Code, 2016 - Section 53, Electricity Act, 2003 - The issue was whether a statutory charge created under the Electricity Act, 2003 and contractual terms in an electricity supply agreement survives the moratorium under Section 14 of the IBC. The Court held that the moratorium does not extinguish pre-existing charges, and the appellant is entitled to be treated as a secured creditor in the liquidation of the corporate debtor. (Paras 1-5) B) Insolvency Law - Liquidation - Priority of Dues - Section 53, Insolvency and Bankruptcy Code, 2016 - The Court held that the appellant's claim as a secured creditor must be dealt with in accordance with the priority prescribed under Section 53 of the IBC, and the liquidator cannot ignore the statutory charge. (Paras 4-5)
Issue of Consideration
Whether a statutory charge created under the Electricity Act, 2003 and contractual terms in an electricity supply agreement survives the moratorium under Section 14 of the Insolvency and Bankruptcy Code, 2016, and whether the appellant is entitled to be treated as a secured creditor in the liquidation of the corporate debtor.
Final Decision
The Supreme Court allowed the appeal, set aside the NCLAT order, and directed the liquidator to treat PVVNL as a secured creditor and deal with its claim in accordance with Section 53 of the IBC.
Law Points
- Statutory charge under Electricity Act
- 2003
- Section 53
- survives liquidation
- Insolvency and Bankruptcy Code
- 2016
- Section 14 moratorium does not extinguish pre-existing charges
- secured creditor status
- distribution under Section 53 of IBC
- priority of dues
