Paschimanchal Vidyut Vitran Nigam Ltd. v. Raman Ispat Private Ltd. and others [Company Appeal (AT) (Insolvency) No. 639 of 2018, dated May 15, 2019] 2023 SCC Online SC 842,

The Supreme Court explains the hierarchy in the case of Paschimanchal Vidyut Vitran Nigam Ltd v. Raman Ispat Private Ltd and others settling the dues, and according to the Supreme Court, Section 238 of the IBC prevails over the Electricity Act 2003. PVVNL contracted Raman Ispat Pvt. Ltd. (the defendant) for electricity supply, establishing a charge on the company’s assets for unpaid dues. Raman Ispat entered the Corporate Insolvency Resolution Process (CIRP) in 2017 but it went in vain. Subsequently, PVVNL attached the properties of the corporate debtor by order of the District Collector. After the corporate debtor went into liquidation in 2018, the NCLT ordered the release of attached properties for sale under the Insolvency and Bankruptcy Code (IBC).  PVVNL’s appeal to this decision was rejected by the NCLAT in 2019, as it claimed priority under Section 53 of the IBC, which explains the distribution of assets.  NCLAT ruled PVVNL’s claim as an operational creditor in liquidation. Later, PVVNL will appeal to the Supreme Court. The central issue is the balance between PVVNL’s right to recover unpaid dues through asset attachment and the liquidator’s duty under the IBC to sell assets for fair distribution among creditors. While hearing this appeal, the court provided clarification regarding the rights of the creditors operating under the IBC. In its judgement, the Supreme Court ruled that Section 53 of the IBC outlines the waterfall mechanism, which means the priority of distribution under liquidation. It prioritises insolvency resolution costs, followed by employee dues, secured creditors with relinquished security, unsecured financial creditors, government debts, and operational debts. Also, the Supreme Court referred to the Rainbow Papers Ltd. judgement and said that it is not relevant as it addressed the priority of government dues under IBC. The judgement emphasised that any resolution plan must include payment of such statutory dues to be binding. The appeal was dismissed; however, the liquidator was instructed to adjudicate PVVNL’s claim promptly within 10 weeks.

AUTHOR:

Thirisha S, 4th-year student of B.A., LL.B. (Hons.) from School Of Excellence in Law.