S.238 IBC Is Non-Obstante Clause, Overrides Provisions Of Electricity Act: Allahabad High Court
The Allahabad High Court has held that the Insolvency and Bankruptcy Code, 2016 overrides the provisions of Electricity Act, 2003 read with Electricity Supply Code, 2005.A bench of Justice Arindam Sinha and Justice Prashant Kumar held“Section 238 of Insolvency and Bankruptcy Code, 2016 is a non- obstante clause meaning it grants the IB Code a power of overriding effect on other laws, for...
The Allahabad High Court has held that the Insolvency and Bankruptcy Code, 2016 overrides the provisions of Electricity Act, 2003 read with Electricity Supply Code, 2005.
A bench of Justice Arindam Sinha and Justice Prashant Kumar held
“Section 238 of Insolvency and Bankruptcy Code, 2016 is a non- obstante clause meaning it grants the IB Code a power of overriding effect on other laws, for the time being in force, or any instrument that is inconsistent with it. This is a Special Section, which ensures that the IBC framework for Insolvency and Bankruptcy resolution or liquidation take precedence over all other laws, establishing this Code has a comprehensive and specific law for its intended purpose.”
“A plain reading of Section 238 of IB Code, 2016 clearly shows that it has overriding effect over other Acts. Similar provision is also found in Electricity Act, 2003. Since, IB Code, 2016 is later Act, hence, it will have overriding effect on Electricity Act, 2003,” they added.
M/s Chaudhary Ingots Pvt. Ltd. went into liquidation after the CoC failed to approve the resolution plan. Online auction was conducted pursuant to direction by the NCLT, Allahabad, in which the petitioner emerged as the successful bidder.
Petitioner paid the full amount after which the sale certificate was issued on 07.07.2022, with the title deed executed on 29.05.2024. However, upon applying for an electricity connection, Pashchimanchal Vidyut Vitran Nigam Ltd (PVVNL) asked the petitioner to deposit Rs.4,92,69,142 owed by the corporate debtor.
Aggrieved, the petitioner approached the High Court by way of a writ petition which was disposed of with direction to PVVNL to consider judgments by the Supreme Court on non-recovery by successful bidder. Petitioner was at liberty to produce said judgment before PVVNL. If PVVNL found it suitable, electricity connection was to be granted expeditiously.
However, PVVNL rejected the subsequent representation and demanded Rs. 4,041,92,94 from the petitioner. Aggrieved, the petitioner filed another writ petition.
The Court observed that in K.C. Ninan vs. Kerala State Electricity Board, the Supreme Court had confined its ratio to the Electricity Act and Supply Code but had no opportunity to deal with a situation where there was a conflict between two enactments. Accordingly, said ratio would be applicable only where dues outstanding where not with respect to a property settled under the Insolvency and Bankruptcy Code, 2016.
The Court referred to Ghanshyam Mishra and Sons Pvt. Ltd. vs. Edelweiss Asset Reconstruction Company Limited where the Apex Court had held that tax authorities are barred from raising claims on auction winners due to faults of the past owner.
It was observed that the Supreme Court in a catena of judgments had stated that the IBC will have an overriding effect on the Electricity Act.
Thereafter, the Court referred to M/s Innoventive Industries Ltd. vs. ICICI Bank (followed in CIT vs. Monnet Ispat and Energy Ltd.), wherein the Apex Court held that Section 238 of IBC was drafted in the widest possible terms so that rights of the corporate debtor do not come in the way of the Code.
The Court observed that respondents had already participated in liquidation proceedings, it could not avail two reliefs at the same time. Their dues would be decided by the mechanism under the Code. It was held that the respondents could not pressurize the petitioner to pay dues of the corporate debtor under the Electricity Act.
The Court held that the IBC being a later law would override the earlier statute, with the issue covered by the legal doctrine of Lex Posterior Devogat Priori (in case of conflict, later law prevails).
Accordingly, the impugned order was set aside, and the respondents were directed to install a power connection in the petitioner's premises, with dues to be collected from the liquidator.
Case Title: M/S Dharti Agro Industries Pvt. Ltd. Versus The Managing Director, Pashchimanchal Vidyut Vitran Nigam Ltd And 2 Others [WRIT - C No. - 27040 of 2025]