Allahabad High Court Upholds IBC's Supremacy Over Electricity Act in Landmark Judgment

Court Orders Installation of Power Connection, Striking Down Demand for Arrears from Auction Purchaser

In a significant ruling, the Allahabad High Court has affirmed the supremacy of the Insolvency and Bankruptcy Code (IBC), 2016 over the Electricity Act, 2003, thus protecting auction purchasers from being liable for the electricity dues of previous owners when acquiring property through liquidation proceedings. This landmark decision came in the case of M/S Dharti Agro Industries Pvt. Ltd. versus the Managing Director of Pashchimanchal Vidyut Vitran Nigam Ltd., where the court directed the respondent to install a power connection at the petitioner’s premises without demanding payment of outstanding dues from the erstwhile owner.

The case revolved around the refusal of Pashchimanchal Vidyut Vitran Nigam Ltd. (PVVNL) to provide a new electricity connection to M/S Dharti Agro Industries Pvt. Ltd., citing outstanding dues from the previous owner of the auctioned property, M/s Chaudhary Ingots Pvt. Ltd., which had been acquired under the liquidation process directed by the National Company Law Tribunal (NCLT), Allahabad. The petitioner, having purchased the property in an auction and fulfilled all payment obligations, was faced with demands to clear the previous owner’s electricity dues amounting to Rs.4,92,69,142 before a new connection could be granted.

Justice Prashant Kumar, delivering the judgment, highlighted that the IBC, by virtue of Section 238, overrides the provisions of the Electricity Act, 2003. The court emphasized that respondents (electricity supplier) are entitled to recover their dues only through the liquidation process and cannot pressurize the auction purchaser to clear the dues outside this framework.

The judgment also referenced several Supreme Court decisions, including Southern Power Distribution Company of Telengana Ltd. v. Gopal Agarwal, which reinforced that auction purchasers cannot be held liable for past arrears and that electricity connections should not be withheld for such dues. The court noted that the respondents had already submitted their claims to the liquidator, who would adjudicate the claims according to the waterfall mechanism prescribed under Section 53 of the IBC.

The ruling underscored the principle of Lex Posterior Derogat Priori, which dictates that in cases of conflict between statutes, the later enactment prevails. This doctrine was pivotal in determining that the IBC, being a later statute, supersedes the earlier Electricity Act, resolving the inconsistency between the two laws.

The court set aside the impugned order dated 15th May 2025 and directed PVVNL to install the electricity connection at the petitioner’s premises, leaving the respondents the option to recover their dues from the liquidator as part of the liquidation proceedings.

This judgment is expected to have wide-ranging implications for future insolvency and bankruptcy cases, particularly concerning the treatment of statutory dues, and reinforces the IBC's role as a comprehensive and overriding legal framework for insolvency resolution in India.

Bottom Line:

Insolvency and Bankruptcy Code, 2016 will have overriding effect over the Electricity Act, 2003, and outstanding electricity dues of the corporate debtor cannot be recovered from the auction purchaser who bought the property in a liquidation process.

Statutory provision(s): Section 238 of the Insolvency and Bankruptcy Code, 2016; Sections 173, 174 of the Electricity Act, 2003; Section 53 of the Insolvency and Bankruptcy Code, 2016.

M/S Dharti Agro Industries Pvt. Ltd. v. Managing Director, Pashchimanchal Vidyut Vitran Nigam Ltd, (Allahabad)(DB) : Law Finder Doc Id # 2781352