Pranav B Prem

The National Company Law Appellate Tribunal (NCLAT), Principal Bench, New Delhi, recently ruled that the Insolvency and Bankruptcy Code (IBC), 2016, does not automatically override other statutes unless there is a clear and direct conflict. The decision was pronounced in Shree Rajasthan Syntex Ltd. v. Chief Engineer (Commercial), Ajmer Vidyut Vitran Nigam Ltd. The tribunal upheld the ruling of the National Company Law Tribunal (NCLT), Jaipur Bench, allowing the recovery of Fuel Surcharge (FS) and Special Fuel Surcharge (SFS) by Ajmer Vidyut Vitran Nigam Ltd. (AVVNL) from Shree Rajasthan Syntex Ltd. for periods preceding the initiation of the Pre-Packaged Insolvency Resolution Process (PPIRP).

Background of the Case

Shree Rajasthan Syntex Ltd., a public limited company engaged in manufacturing synthetic yarns, filed an application before the Adjudicating Authority under Section 54C of the IBC, seeking initiation of PPIRP. The application was admitted in April 2023, and a Resolution Professional (RP) was appointed. The RP invited claims from creditors, but AVVNL did not file a claim regarding FS and SFS within the stipulated period. Subsequently, the appellant received electricity bills in April and May 2023, which included FS and SFS charges for the period between October 2021 and June 2022. Challenging these charges, the appellant filed an interlocutory application before the NCLT under Section 60(5) of the IBC, asserting that the dues should have been extinguished upon approval of the Resolution Plan. However, the NCLT allowed AVVNL to recover the charges, prompting the appellant to file an appeal before the NCLAT under Section 61 of the IBC.

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Appellant’s Arguments

1. Extinguishment of Dues Post-Resolution Plan: The appellant contended that once a resolution plan is approved under Section 31(1) of the IBC, all pre-existing claims that are not included in the plan stand extinguished. Reliance was placed on Ghanashyam Mishra & Sons (P) Ltd. v. Edelweiss Asset Reconstruction Co. Ltd., [(2021) 9 SCC 657], which held that claims not forming part of an approved resolution plan cannot be enforced later.

2. Violation of the Clean Slate Doctrine: The appellant argued that the impugned order violated the "clean slate" principle as established in Essar Steel India Ltd. v. Satish Kumar Gupta, [(2020) 8 SCC 531], which mandates that once a resolution plan is approved, past liabilities are wiped out.

3. IBC’s Overriding Effect: The appellant maintained that Section 238 of the IBC gives it overriding power over other laws, including the Electricity Act, 2003, thereby barring AVVNL from claiming dues outside the insolvency process.

Respondent’s Arguments

1. Legitimacy of FS and SFS as Statutory Charges: AVVNL countered that FS and SFS are statutory dues under the Electricity Act, 2003, and became due when the bills were issued rather than when the electricity was consumed. The respondent relied on the Supreme Court’s ruling in Prem Cottex v. Uttar Haryana Bijli Vitran Nigam Ltd., [(2021) SCC Online SC 870], which clarified that the obligation to pay electricity charges arises when the bill is raised, not when the service is availed.

2. No Direct Conflict Between IBC and the Electricity Act: The respondent argued that since no direct conflict exists between the IBC and the Electricity Act, both laws should be harmoniously interpreted, as previously upheld in Pioneer Urban Land and Infrastructure Ltd. v. Union of India, [(2019) 8 SCC 416].

3. Appellant’s Inconsistent Stance: AVVNL pointed out that the appellant had been making installment payments towards FS and SFS until securing an interim stay from the Adjudicating Authority. The appellant’s subsequent claim for extinguishment of dues was, therefore, contradictory.

Key Issues Considered by NCLAT

1. Can FS and SFS be classified as pre-insolvency liabilities and consequently extinguished under Section 31 of the IBC?

2. Does a conflict exist between the Electricity Act, 2003, and the IBC, 2016, regarding the recovery of FS and SFS?

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NCLAT’s Observations and Ruling

1. FS and SFS as Statutory Dues: The tribunal held that FS and SFS were statutory charges under the Electricity Act, 2003, and became payable only when the bills were issued. Since the bills in question were generated after the commencement of PPIRP, these charges did not form part of the insolvency resolution process and remained enforceable.

2. Harmonious Interpretation of IBC and Electricity Act: The tribunal reiterated the principle established in Pioneer Urban Land that when two laws operate in the same domain, they must be interpreted harmoniously unless there is a direct conflict. The court found no inconsistency between the IBC and the Electricity Act, as the latter governs electricity dues independently of insolvency proceedings.

3. IBC Does Not Override Other Laws Without a Clear Conflict: The tribunal emphasized that Section 238 of the IBC does not automatically override all other laws. It only comes into play when there is a clear and irreconcilable inconsistency between statutes. Since the Electricity Act mandates the collection of FS and SFS, these dues could not be extinguished under the IBC.

4. Reliance on Prem Cottex Judgment: The NCLAT referred to Prem Cottex v. Uttar Haryana Bijli Vitran Nigam Ltd. to highlight that an electricity liability arises upon the issuance of bills. Consequently, FS and SFS charges billed after the commencement of PPIRP were due and payable despite the insolvency resolution.

Advocates representing the parties: 

For Appellant: Mr. Krishnendu Datta, Sr. Advocate, Mr. Anjaneya Mishra, Mr. Sahil, Mr. Nidish Gupta, Advocates and Mr. Prakul Khurana, Mr. Yash Tandon.

For Respondents: Mr. Bipin Gupta, Advocate for R- 1 & 2. Mr. Gaurav Mitra, Ms. Neha Agarwal, Ms. Lavanya, Advocates for R-3

Cause Title: Shree Rajasthan Syntex Ltd. V Chief Engineer (Commercial), Ajmer, Ajmer Vidyut Vitran Nigam Ltd

Case No: Company Appeal (AT) (Ins) No. 1411 of 2024 & I.A. No. 5124, 5125, 5126, 7549 of 2024

Coram: Justice Rakesh Kumar Jain (Member (Judicial)), Mr. Naresh Salecha (Member (Technical)) and Mr. Indevar Pandey (Member (Technical))

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