IBC Only Overrides Another Statue When There Is A Clear And Direct Conflict: NCLAT

Brief Facts

M/s Shree Rajasthan Syntex Ltd. is a public limited company engaged in the manufacturing of synthetic spun yarns, cotton yarn and polypropylene yarns. In 2022, the appellant filed an application before the Adjudicating Authority under Section 54C of the Insolvency and Bankruptcy Code, 2016, seeking initiation of Pre-packaged insolvency resolution process (PPRIP). In April 2023, the application was admitted by the Adjudicating Authority and a RP was appointed respectively.

RP issued a public announcement in the same month inviting claims from creditors. The Respondents did not file any claim regarding Fuel Surcharge (FS) and Special Fuel Surcharge (SFS) during the claim submission period. The Appellant received bills dated 05.04.2023 and 05.05.2023, wherein the Respondent No. 1 charged Rs. 18,13,013/- and Rs. 27,89,415/-, respectively, towards Fuel Surcharge (FS) for the period October 2021 – June 2022.

On 22.05.2023, the Appellant filed IA No. 283/JPR/2023 before the Adjudicating Authority under Section 60(5) of the IBC, 2016, challenging the demand for Fuel Surcharge and Special Fuel Surcharge and seeking interim relief. The Committee of Creditors (CoC) in its two meetings have also approved the Base Resolution Plan.

The Adjudicating Authority on 14.06.2024, passed the impugned order, allowing the Respondents to recover Fuel Surcharge and Special Fuel Surcharge for the period prior to insolvency admission. The Appellant, aggrieved by the decision, filed the present appeal under Section 61(1) of the Insolvency and Bankruptcy Code, 2016.

Submission of Appellant

The Appellant contended that NCLT, Jaipur had erroneously permitted Respondent No 1 to raise demand towards fuel surcharge (FS) and special fuel surcharge (SFS) for a period prior to the initiation of PPIRP. The appellant stated that the NCLT has committed a grave error by failing to recognize that such demands stand extinguished upon the approval of the Resolution Plan considering the authoritative judgment of the Hon'ble Supreme Court in Ghanashyam Mishra & Sons (P) Ltd. v. Edelweiss Asset Reconstruction Co. Ltd., [(2021) 9 SCC 657]. The Appellant further stated further stated that the impugned order violated the principle of “Clean slate” enshrined in Section 31(1) of IBC, 2016, as established in Essar Steel India Ltd. v. Satish Kumar Gupta, [(2020) 8 SCC 531] and Ghanashyam Mishra.

The Appellant further contended that the Respondent's demand was contrary to Section 238 of IBC, which gives the code overriding effect over the laws, including the Electricity Act, 2003.

Submission of Respondents

The Respondent (Ajmer Vidyut Nigam Ltd. (AVVNL) stood against the appeal stating that it was devoid of merit and based on misleading claims. They contended that the appellant sought relief based on incorrect assertions, particularly regarding the extinguishment of outstanding dues. The respondents also stated that the appellant's liability was governed by the Electricity Act, 2003 and the orders of the Rajasthan Electricity Regulatory Commission (RERC), particularly under Section 61 and 62 of the Electricity Act, which outlines tariff determination principles. The respondent cited the Judgment of Hon'ble Supreme Court in Prem Cottex vs. Uttar Haryana Bijli Vitran Nigam Ltd. [(2021) 20 SCC 200] which clarified that under Section 56 of the Electricity Act, 2003, the obligation to pay arises when the bill is raised regardless of when the consumption occurred. The Respondents also rejected the appellants claim that the IBC overrides the Electricity Act, asserting that no direct conflict existed between the two laws and that a harmonious interpretation should be applied.

Key Issues highlighted by the Tribunal

1. Do FS and SFS count as pre-insolvency liabilities that were erased when the resolution plan was approved under Section 31 of the Insolvency and Bankruptcy Code, 2016 (IBC)?
2. In this matter of recovery of FS and SFS, is there a conflict between Electricity Act, 2003 and IBC, 2016 or both can be harmoniously interpreted?

NCLAT Judgement

The NCLAT dismissed the appeal filed by Shree Rajasthan Syntex Ltd. The NCLAT ruled that that AVNL was entitled to recover Fuel Surcharge (FS) and Special Fuel Surcharge (SFS) from the appellant as these are statutory charges under the Electricity Act, 2003.

In deciding the case, the court examined two key issues:

1. Do FS and SFS count as pre-insolvency liabilities that were erased when the resolution plan was approved under Section 31 of the Insolvency and Bankruptcy Code, 2016 (IBC)?

The appellant stated that once a resolution plan is approved under Section 31 of the code, all prior claims not included in the plan are extinguished. The Tribunal rejected this argument holding that FS and SFS are statutory charges under the Electricity Act, 2003 and became due when billed and not at the time of electricity consumption. The court also mentioned the judgement of Prem Cottex v, Uttar Haryana Bijli Vitran Nigam [(2021) SCC Online SC 870] where the supreme court stated that while the liability to pay arises at the time of consumption the obligation to pay arises only when the bill is raised. Thus, FS and SFS were not due when the PPIRP was initiated but became payable only when the respondent issued bills.

2. In this matter of recovery of FS and SFS, is there a conflict between Electricity Act, 2003 and IBC, 2016 or both can be harmoniously interpreted?

The Tribunal rejected this contention stating that there was no direct conflict between the IBC and the Electricity Act in this case. It relied on the Supreme Court's ruling in Pioneer Urban Land and Infrastructure Ltd. & Anr. v. Union of India [(2019) 8 SCC 416] where the court ruled that when two laws operate simultaneously a harmonious interpretation must be applies. The IBC only overrides another statue when there is a clear and direct conflict.

Thus, the tribunal rules that FS and SFS could not be extinguished under IBC and the Electricity Act remained applicable.

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

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

Tribunal: National Company Law Appellate Tribunal, Principal Bench, New Delhi

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

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

Date of Judgement: 11th March, 2025

Read/Download Order Here