Paschimanchal Vidyut Vitaran Nigam Ltd. VS Raman Ispat Pvt. Ltd. (Case Summary)

The Supreme Court in Paschimanchal  Vidyut Vitaran Nigam Ltd Vs. Raman Ispat Private Ltd. ( Civil Appeal Nos. 7976 of 2019 ) has cleared uncertainty arising out of judgment of the Supreme Court in State Tax Officer Vs. Rainbow Papers Ltd. 2022 (13) SCR 808. The Supreme Court has observed that the separate and distinct treatment of amounts payable to secured creditor on the one hand, and dues payable to the government on the other clearly signifies Parliament’s intention to treat the latter differently.  

FACTS OF THE CASE

Paschimanchal Vidyut Vitaran Nigam Ltd (PVVNL) had supplied electricity to the Corporate Debtor. There were outstanding due of Rs. 4,32,33,883/-. The Tehsildar restrained transfer of property by sale, donation or any other mode, and also created a charge on the properties. The Collector also initiated recovery proceedings.

The Corporate Debtor was admitted to CIRP. Resolution of the Corporate Debtor could not succeed as such liquidation of the Corporate Debtor was initiated.

The Liquidator approached the NCLT for setting aside attachment orders of property of the Corporate Debtor which was allowed. NCLAT also endorsed the view of the NCLT. Aggrieved by the same PVVNL approached the Supreme Court.

ISSUES OF THE CASE

There were two issues involved in the matter. Firstly, whether IBC will override Electricity Act and secondly, whether PVVNL was a secured creditor.

FINDINGS OF THE COURT

The Supreme Court relied on Bankruptcy Law Reforms Committee Report, 2015, Preamble of IBC etc and observed that government dues have been given lower priority in waterfall mechanism under Section 53. The Code has provided specific category for government dues as such government dues will fall in that specific category i.e. 53 (1) (e).  The Supreme Court observed that Rainbow Papers judgment has not notices the “waterfall mechanism” under Section 53 of the Code. Rainbow Papers was dealing with CIRP and not liquidation. The design given under Section 53 was not brought to notice or missed in Rainbow papers. Legislature has intended to give separate treatment to secured devt and government debts.

The Court also held that IBC will override Electricity Act, 2003 relying upon judgments of Supreme Court in Sundaresh Bhatt and Duncan Industries , CIT v. Monnet Ispat & Energy Ltd.  , Ghanashyam Mishra & Sons (P) Ltd. v. Edelweiss Asset Reconstruction Co. Ltd.  , and Jagmohan Bajaj v. Shivam Fragrances Private Limited.

The Supreme Court held that in the instant case the PVVNL is not covered under definition of State as such PVVNL will fall under category of secured creditor. The Supreme Court did not consider impact of  Section 77 of the Companies Act, 2013 in light of concurrent finding of the NCLT and NCLAT that  PVVNL is a secured Creditor.

CONCLUSION

This judgment has provided much needed clarity on treatment given to government dues under Section 53 IBC. Many government departments had started claiming that it falls under category of secured creditor under 53 (1) (b)  in light of  “charge” provisions in relevant  Acts/Rules in case of non-payment of dues. It can be inferred from this judgment that all government dues whether they are “charge” or not will fall under 53 (1) (e).

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