Auction Purchaser Not Liable for Past Electricity Dues: IBC Overrides Electricity Act, Rules Allahabad High Court
- REEDLAW
- Nov 4
- 4 min read
REEDLAW Legal News Network reports: In a pivotal ruling, the Allahabad High Court clarified that an auction purchaser acquiring assets through liquidation under the Insolvency and Bankruptcy Code, 2016, cannot be held liable for the past electricity dues of the corporate debtor. The Court decisively held that the overriding provision under Section 238 of the IBC prevails over the Electricity Act, 2003 and the applicable Supply Code, thereby protecting bona fide auction purchasers from legacy liabilities attached to the assets.
The Allahabad High Court Division Bench comprising Justice Arindam Sinha and Justice Prashant Kumar, while adjudicating a writ petition, held that the auction purchaser was not liable to discharge the previous electricity dues of the corporate debtor whose assets were acquired through liquidation proceedings. The Bench emphasised that Section 238 of the Insolvency and Bankruptcy Code, 2016 has an overriding effect over the provisions of the Electricity Act, 2003 and the Electricity Supply Code, and hence, any claim for past dues against the purchaser would contravene the settled principles of the IBC framework.
The petitioner, a private company engaged in the trading of steel products, had participated in an online auction of immovable assets belonging to a corporate debtor that had undergone liquidation under the Insolvency and Bankruptcy Code, 2016. Pursuant to the auction conducted under the direction of the Adjudicating Authority, the petitioner deposited the requisite earnest money and submitted the highest bid, which was duly accepted. The petitioner thereafter paid the full consideration amount, whereupon the sale certificate was issued, followed by possession and execution of the sale deed in its favour. Subsequently, the petitioner applied for an electricity connection to the purchased premises. However, the electricity distribution company refused to grant the connection, citing outstanding dues of the erstwhile owner and insisting that the petitioner clear such dues before any new connection could be sanctioned.
The petitioner made several representations before the competent authority, all of which were unsuccessful. Earlier, upon filing a writ petition before the High Court, the matter was disposed of with a direction to the respondent authorities to reconsider the petitioner’s request in light of the Supreme Court’s decision in Southern Power Distribution Company of Telangana Ltd. v. Gopal Agarwal & Ors., which held that auction purchasers cannot be made liable for past electricity dues of the previous owner when the property is purchased through insolvency or liquidation proceedings. Despite this direction, the authority rejected the petitioner’s subsequent representation, again insisting upon payment of the outstanding dues of the corporate debtor, prompting the present writ petition.
The petitioner contended that once the property had been sold under liquidation proceedings, the Insolvency and Bankruptcy Code, 2016 (IBC) would have an overriding effect over the provisions of the Electricity Act, 2003 and the Electricity Supply Code, 2005 by virtue of Section 238 of the IBC. It was argued that the electricity company, being a creditor, was entitled to file its claim before the liquidator and could recover dues only as per the waterfall mechanism under Section 53 of the Code. The petitioner relied on several Supreme Court decisions, including Paschimanchal Vidyut Vitran Nigam Limited v. Raman Ispat Private Limited and Others, REEDLAW 2023 SC 07609 and Tata Power Western Odisha Distribution Ltd. v. Jagannath Sponge Pvt. Ltd., wherein it was held that distribution companies cannot demand arrears from an auction purchaser, and their claims must be settled in accordance with the liquidation process under the IBC.
Conversely, the respondent authority argued that the Electricity Act, 2003, was a special legislation containing a non-obstante clause that granted primacy to its provisions over other laws, and that arrears of electricity dues constituted a charge on the property as per Clause 4.3(f)(iv) of the Uttar Pradesh Electricity Supply Code, 2005. It was further contended that under the ratio of K.C. Ninan v. Kerala State Electricity Board, recovery of electricity dues from a subsequent purchaser was permissible when provided by a statutory regulation.
The Court observed that while the K.C. Ninan judgment upheld recovery provisions under the Electricity Act, the said decision did not consider the interplay between the Electricity Act and the Insolvency and Bankruptcy Code. The Court noted that the Supreme Court in Paschimanchal Vidyut Vitran Nigam Limited v. Raman Ispat Private Limited and Others, REEDLAW 2023 SC 07609 and Tata Power Western Odisha Distribution Ltd. had categorically held that Section 238 of the IBC overrides other inconsistent enactments, including the Electricity Act, and that electricity companies, having participated as creditors in liquidation proceedings, could only recover their dues in accordance with the waterfall mechanism prescribed under Section 53 of the IBC. Accordingly, the insistence of the respondent on payment of past dues by the petitioner, who had lawfully purchased the property under liquidation proceedings, was found to be unsustainable in law.
Mr. Ashish Kumar, Mr. Deepak Kumar Pandey and Mr. Sandeep Pandey, Advocates, represented the Petitioner.
Mr. Kartikeya Saran, Advocate, appeared for the Respondent.
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