IBC Overrides Electricity Act In Conflict, Pre-CIRP Dues Cannot Be Enforced: Allahabad High Court

The Allahabad High Court on 24 April, held that the Insolvency and Bankruptcy Code, 2016 (IBC), being a later law, prevails over the Electricity Act, 2003 in case of inconsistency.

The Bench of Justices Ajit Kumar and Swarupama Chaturvedi allowed the writ petition and held that Section 238 of the IBC gives the Code overriding effect over other statutes, including sector-specific laws. It held:

“The legislative intent is thus to create a self-contained and comprehensive framework where all claims against the corporate debtor are required to be addressed during CIRP period only, so that upon approval of the resolution plan, the rights and liabilities stand conclusively determined.”

South East U.P. Power Transmission Company Limited is a special purpose vehicle set up to develop a 765 kV transmission system on a Build-Own-Operate-Maintain & Transfer (BOOT) basis at the Mainpuri-Bara line.

Isolux Corsan Concesiones S.A. held 100% shareholding in the company. The petitioner entered into agreements with DISCOMs and obtained necessary permissions for commissioning the transmission system. It later entered insolvency proceedings before the National Company Law Tribunal (NCLT). Resurgent Power Ventures Pvt. Limited emerged as the successful resolution applicant and acquired 100% shareholding in the petitioner.

During inspection, authorities found no meter at the Rewa Road Sub-station. The Prescribed Authority raised a demand of Rs. 2,17,49,692.58 for alleged auxiliary consumption of electricity from ICT-II for the period 2 October 2015 to 1 December 2022. The petitioner challenged the demand as it related to the CIRP period. The authority issued further notices alleging unauthorised use of electricity and indicated recovery proceedings. The petitioner challenged these notices before the High Court.

The Court referred to Section 238 and Section 31 of the IBC and reiterated:

“The legislative intent is thus to create a self-contained and comprehensive framework where all claims against the corporate debtor are required to be addressed during CIRP period only, so that upon approval of the resolution plan, the rights and liabilities stand conclusively determined.”

The Court applied the principle leges posteriores priores contrarias abrogant and held that where two laws conflict, the later enactment prevails over the earlier one.

It relied on Section 238 of the IBC and held that the insolvency framework operates with overriding effect. The Bench rejected the argument that the Electricity Act and the UP Electricity Supply Code, 2005 allow recovery of pre-CIRP dues after approval of the resolution plan. It held:

“In the light of above, if we read Section 238 of IBC, it clearly indicates the legislative intent to ensure that the insolvency resolution framework operates with primacy in the event of inconsistency. Hence, reliance on the provisions of Electricity Act, 2003 and UP Electricity Supply Code 2005 to contend that the pre-CIRP dues can be recovered after the company is resolved and the resolution plan is implemented, is misconceived.”

The Bench held that the IBC protects the resolution applicant from past liabilities of the corporate debtor, as shifting such liabilities would undermine the insolvency process and create uncertainty in resolution outcomes. It further held that claims arising before approval of the resolution plan cannot survive once the plan is approved. It observed:

“As a subsequent enactment, the IBC provides a comprehensive insolvency framework while accounting for all other existing laws. Therefore, claims relating to any period prior to approval of the resolution plan stand extinguished.”

The Court clarified that electricity dues do not fall outside the scope of the IBC. However, it held that authorities cannot enforce such claims after approval of a resolution plan. It also distinguished between claims that existed or were ascertainable during the CIRP and those detected later, and held that both categories stand extinguished once the resolution plan is approved, applying the clean slate principle.

The Bench further held that the petitioner cannot be fastened with liability for dues that arose before approval of the resolution plan. However, it remains liable for obligations arising after it stepped into the shoes of the corporate debtor. It reiterated that the overriding effect of Section 238 of the IBC prevails even over the Electricity Act, including Sections 173 and 174.

Accordingly, the High Court allowed the writ petition.