Section 238 IBC Non-Obstante Clause: Insolvency Code Overrides Electricity Act, Allahabad High Court Directs PVVNL to Grant Connection to Auction Purchaser
Isabella Mariam
The High Court of Judicature at Allahabad, Division Bench of Justice Arindam Sinha and Justice Prashant Kumar held that the Insolvency and Bankruptcy Code, 2016 prevails over the Electricity Act, 2003 and the Electricity Supply Code, 2005 in case of any inconsistency. The Court noted that Section 238 of the Code confers it with overriding authority, ensuring that insolvency and liquidation processes are governed exclusively under the IBC framework. Setting aside the order demanding clearance of the previous owner’s dues, the Bench directed the electricity distribution company to provide a fresh connection to the auction purchaser, limiting recovery of arrears to the liquidation proceedings.
The dispute arose when a private company engaged in steel trading purchased the immovable assets of an insolvent entity through an online auction conducted under the supervision of the National Company Law Tribunal, Allahabad. The auction was managed by the appointed liquidator following the liquidation of the debtor company, whose resolution plan had not been approved by the Committee of Creditors. The purchaser deposited the full bid amount, received a sale certificate and possession letter, and later obtained the registered sale deed for the property.
Subsequently, the purchaser applied to the electricity distribution company for a new power connection at the acquired premises. The application was declined on the ground that substantial arrears of electricity dues were outstanding against the previous owner, and the connection would not be provided unless those dues were cleared. The purchaser made several representations requesting reconsideration, but the respondents reiterated the demand for payment of the outstanding amount.
The purchaser contended that the property had been acquired through liquidation proceedings under the Insolvency and Bankruptcy Code, 2016 (IBC), and therefore, no liability of the erstwhile owner could be transferred to it. It was argued that the respondents had already submitted their claim for unpaid dues before the liquidator and could recover the amount only through the mechanism prescribed under the IBC. Reliance was placed on various Supreme Court judgments, including Southern Power Distribution Company of Telangana Ltd. v. Gopal Agarwal, Paschimanchal Vidyut Vitran Nigam Ltd. v. Raman Ispat Pvt. Ltd., and Sundaresh Bhatt, Liquidator of ABG Shipyard v. CBIC, to assert that Section 238 of the IBC overrides conflicting provisions of other laws.
The electricity company, on the other hand, maintained that the Electricity Act, 2003 and the U.P. Electricity Supply Code, 2005 authorize the recovery of dues as a charge on the assets and that these provisions have overriding effect. Reliance was placed on the Supreme Court’s decision in K.C. Ninan v. Kerala State Electricity Board to support recovery from subsequent purchasers.
The judgment recorded: “It is clear that IB Code, 2016 will have overriding effect over Electricity Act, 2003, hence, the respondents will get their outstanding dues only in the liquidation proceeding.” The Court relied on Paschimanchal Vidyut Vitran Nigam Ltd. v. Raman Ispat Pvt. Ltd., where the Supreme Court had stated that power companies participating in insolvency proceedings could not demand payments outside the liquidation mechanism.
Discussing K.C. Ninan v. Kerala State Electricity Board, the Court observed: “The ratio laid down by the Hon’ble Supreme Court in the matter of K.C. Ninan would only be applicable when there is dues outstanding by the previous owner, but not if the property was settled by a proceeding under the IB Code,” it stated.
The Court further cited the Supreme Court’s reasoning in Sundaresh Bhatt, Liquidator of ABG Shipyard v. CBIC, which held that once a moratorium under the IBC is imposed, authorities lack power to recover dues by sale or confiscation of assets. The Bench held that Section 238 of the IBC “grants the Code a power of overriding effect on other laws for the time being in force.”
The Bench also referred to Ghanshyam Mishra and Sons Pvt. Ltd. v. Edelweiss Asset Reconstruction Company Ltd., noting that Parliament’s intent was clear that after a resolution plan or liquidation order, the government or any authority cannot raise further claims. The Court recorded: “Once the resolution plan is accepted, the earlier promoters will be dealt as individuals for their criminality but not the new bidder who is trying to restore the company.”
Referring to legislative principles, the Bench invoked the maxim Lex Posterior Derogat Priori, meaning that in case of conflict, the later law overrides the earlier one. The Court observed that both the IBC and the Electricity Act contain non-obstante clauses, but as the IBC is a subsequent enactment, it prevails. “The newer Acts supersede the older ones to the extent of inconsistency. This reflects the dynamic nature of the legal system allowing it to adapt and evolve with changing social needs,” the Court recorded.
The Bench noted that PVVNL had already filed its claim before the liquidator during the liquidation proceedings of M/s Chaudhary Ingots Pvt. Ltd. and could not simultaneously seek recovery under the Electricity Act. “They have participated in the liquidation proceedings but at the same time pressurizing the petitioner to pay dues of the corporate debtor under the provisions of Electricity Act,” the Court observed.
The judgment stated: “In view of aforesaid facts and discussion, impugned order dated 15th May, 2025 is set aside and the respondents are directed to install power connection in the premises of the petitioner. However, it is open for the respondents to collect its dues from the Liquidator.”
The Court clarified that once PVVNL had participated in the liquidation process, it could not pursue recovery independently under another statute. “It will not be open for the respondents to recover outstanding dues under the Electricity Act, 2003, specially when IB Code, 2016 has been triggered.” The writ petition was accordingly allowed.
Advocates Representing the Parties
For the Petitioners: Mr. Ashish Kumar, Advocate; Mr. Deepak Kumar Pandey, Advocate; Mr. Sandeep Pandey, Advocate
For the Respondents: Mr. Kartikeya Saran, Additional Advocate General; Mr. S.C. Upadhyay, Standing Counsel
Case Title: M/s Dharti Agro Industries Pvt. Ltd. v. The Managing Director, Pashchimanchal Vidyut Vitran Nigam Ltd. and Others
Neutral Citation: 2025: AHC:166904-DB
Case Number: Writ - C No. 27040 of 2025
Bench: Justice Arindam Sinha, Justice Prashant Kumar
