Paschimanchal Vidyut Vitran Nigam Ltd. v. Raman

PASCHIMANCHAL VIDYUT VITRAN NIGAM LTD. v. RAMAN ISPAT PRIVATE LIMITED & ORS. (Civil Appeal Nos. 7976 of 2019) JULY 17, 2023 [S. RAVINDRA BHAT AND DIPANKAR DATTA, JJ.] Insolvency and Bankruptcy Code, 2016 – ss.238, 53 – Overriding effect of s.238 – Distribution of assets u/s.53 – Dues payable to secured creditors vis-à-vis Central or State Government–

Held: s.238, IBC overrides the provisions of the Electri city Act, 2003 despite the latter containing two specific provisio ns which open with non-obstante clauses (ss.173 and 174) – Provisions of the IBC treat the dues payable to secured creditors at a higher footing than dues payable to Central or State Government– Electricity Act, 2003 – ss.173, 174. Insolvency and Bankruptcy Code, 2016 – s.53(1)(a)-( f) – Waterfall mechanism – Priority of claims – Order of distribut ion of assets – “government dues” – Corporate debtor enter ed into an agreement with appellant-PVVNL for supply of electricity – PVVNL raised bills for supply of electricity to the corpo rate debtor but dues remained unpaid – PVVNL attached the corporate debtor’s properties – The Tehsildar, restrained transfer of pr operty by sale, donation or any other mode, and also created a char ge on the properties – Corporate debtor underwent resolution proc ess which was not successful and became subject to liquidatio n – District Collector issued notice for recovery of outstanding d ues – NCLT directed Tehsildar to immediately release property in f avour of the liquidator of the corporate debtor for enabling its s ale, and after realisation of its value, for distributing the proceeds in acc ordance with the IBC – Appeal rejected by NCLAT – PVVNL arg ued that rights of electricity suppliers like PVVNL were not su bordinate and subject to the ‘priority of claims’ mechanism under the IB C – Plea of the liquidator that dues owed to PVVNL were technically owed to the “government”, and thus occupied a lower position in the or der of priority of clearance – Held:”government dues” is not defined in the IBC – It finds place only in the preamble – However, what constitutes such dues is spelt out in the ‘waterfall mechanism’ u/ s.53(1)(e), which inter alia states that, “Any amount due to the Central Government and the State Government including the amount t o be received on account of the Consolidated Fund of Ind ia and the Consolidated Fund of the State” ranks lower in priority to the class of creditors described in Clauses (a) to (d) of s.53(1) – There exists a separate enumeration or specification of the Central Governm ent and State Government dues, as a class apart from other c reditors, including creditorswho may have secured interest (in respect of which amounts may be payable tothem) – These dues are distinct and have to be treated as separate from those owed to secure d creditors – Further, PVVNL undoubtedly has government participation however, that does not render it a government or a part of the ‘State Government’ – Its functions can be replicated by other entities, both priva te and public – Therefore, dues or amounts payable to PVVNL do not fal l within the description of s.53(1)(f) – Uttar Pradesh Electricity Supply Code, 2005 – General Clauses Act, 1897 – ss.3(8), 3(60). Insolvency and Bankruptcy Code, 2016 – Scheme of – Discussed. Electricity Act, 2003 – Uttar Pradesh Electricity Supply C ode, 2005 – Outstanding electricity dues, if a ‘charge’ on assets of corporate debtor – Circumstances in which such a ‘cha rge’ could be constituted in law – Held: In K.C. Ninan v. Kerala State Electricity Board, Supreme Court examined such circumstances and held tha t the creation of a charge need not necessarily be based on an ex press provision of the 2003 Act or plenary legislation, but could be creat ed by properly framed regulations authorized under the parent statute – Thus, in the present case, PVVNL rightly argued that by virtue of Clause 4.3(f)(iv) of the Supply Code, read with the st ipulations in the agreement between the parties, a charge was cre ated on the assets of the corporate debtor – Order of the NCLT also reveals that this position was accepted – This is evident from the order of the NCLAT which clarified that PVVNL also came unde r the definition of ‘secured operational creditor’ as per law – This finding was affirmed by the impugned order – Therefore, the conclusion that PVVNL is a secured creditor cannot be disputed – Elec tricity. Insolvency and Bankruptcy Code, 2016 – ss.52, 53(1)(e) , (f) – Government debts, operational debts vis-à-vis dues owed to unsecured financial creditors–Rationale for placing secured creditors who relinquish their security, higher in priority– Held: The priority of claims, indicated in the hierarchy of preferences, under the waterfall mechanism accords government debts [clause

(e)] and operational debts [clause (f)] lower prior ity than dues owed to unsecured financial creditors – Further, deb ts owed to a secured creditor, whenever such secured creditor “has re linquished security in the manner set out in s. 52” receive a fairly hi gh priority (immediately after insolvency resolution process costs) – When the secured creditor does not relinquish security, the priority of claim is lower [s.53(1)(e)(ii)] in respect of “any amount unpa id following the enforcement of security interest” – Amounts due to the government (i.e., payable into the Consolidated Fund of India or Consolidated Fund of a State) are ranked in the same manner as those of secured creditors who do not relinquish their security interest [s.53(1)(e)(ii)]– Aforesaid rationale discussed. Electricity Act, 2003 – ss.50, 56, 181(2)(x) – Uttar Pradesh Electricity Supply Code, 2005 – Clause 4.3 (f) (iv), C lause 6.15 – Recovery mechanism under– Discussed– Uttar Pradesh Governme nt Electrical Undertakings (Dues Recovery) Act, 1958. Insolvency and Bankruptcy Code, 2016 – s.53(1)(f) – Constitution of India – Article 265 – “government du es” – Held: Dues payable or requiring to be credited to the Treasur y, such as tax, tariffs, etc. which broadly fall within the ambi t of Article 265 are ‘government dues’ and therefore covered by s.53(1)(f) – Whereas, dues payable to statutory corporations which do not fall wi thin the description “amounts due to the central or state governme nt” for instance amounts payable to corporations created by statutes which have distinct juristic entity but whose dues do not constitute government dues payable or those payable into the r espective Consolidated Funds stand on a different footing. Companies Act, 2013 – ss.77, 78, 3(31) – Plea of the liquidator that without registration of charge u/s.77, the sam e was unenforceable under liquidation proceedings – Held: s.78 enacts that when a company whose property is subject to charg e, fails to register it, the charge holder (or the person entitled to the charge over the company’s assets) can seek its registration – s.3( 31) defines “security interest” in the widest terms – Liquidator cannot urge this ISPAT PRIVATE LIMITED & ORS. aspect at this stage, because of the concurrent findings of the NCLT and the NCLAT that PVVNL is a secured creditor – Further, on facts, it is not appropriate to rule on the submissions of the liq uidator vis-à-vis the fact of non-registration of charges u/s.77. Interpretation of Statutes –Insolvency and Bankruptcy Co de, 2016 – Gujarat Value Added Tax Act, 2003–Held: When an enactment uses two different expressions, they cannot be con strued as having the same meaning – Reliance on Rainbow Papers case is of no avail to the appellant and that judgment is to be con fined to its own facts. Dismissing the appeal, the Court HELD: 1.1 The priority of claims, indicated in the hierarchy of preferences, under the waterfall mechanism is th erefore: Firstly, insolvency resolution process costs and the liquidation costs; Secondly, workmen’s dues for the period of 2 4 months preceding the liquidation commencement date and debt s owed to a secured creditor in the event such secured cre ditor has relinquished security; Thirdly, wages and any unpaid du es owed to employees other than workmen for the period of 12 mon ths preceding the liquidation commencement date; Fourthly, financial debts owed to unsecured creditors; Fifthly, any amou nt due to the central government and the state government and debts owed to a secured creditor for any amount unpaid followi ng the enforcement of security interest; Sixthly, any remain ing debts and dues; Seventhly, preference shareholders; and Eighthly equity shareholders or partners. This hierarchy or order of priority th us accords government debts [clause (e)] and operation al debts [clause (f)] lower priority than dues owed to unsecure d financial creditors.Debts owed to a secured creditor, wheneve r such secured creditor “has relinquished security in the m anner set out in section 52” receive a fairly high priority (immediately af ter insolvency resolution process costs), whereas in other cas es, i.e., when the secured creditor does not relinquish security, the priority of claim is lower [Section 53 (1) (e) (ii)] in respect of “an y amount unpaid following the enforcement of security interest”. Another feature is that amounts due to the government (i.e., payabl e into the Consolidated Fund of India or Consolidated Fund of a State) are ranked in the same manner as those of secured c reditors who do not relinquish their security interest [Sect ion 53 (1) (e)

(ii)]. [Paras 27 and 28][1244-C-G]

1.2 Section 52 gives an option to secured creditors to eith er relinquish their security interest, in the liquidation process (the procedure for which is prescribed in Regulations 21 and 21A of the Liquidation Regulations), or proceed to enforce it. In cas e of the latter option, the secured creditor has to firs t indicate its option, within the time prescribed (30 days, in Form C or D of Schedule II to the Liquidation Regulations). The liquidator may then, per Section 52 (3), permit the secured credito r to realize such dues as are proved to exist, as security debts . Upon clearance by the liquidator, the secured creditor may proc eed to enforce its claim, under Section 52 (4). If there is resistance during the process, the secured creditor may approach the NCLT [Section 52 (5) and (6)]. Upon enforcement, any excess amount realized should be tendered to the liquidator [Section 52 (7)]. It is thus, apparent, that a secured creditor has to take a calcu lated decision, at the outset of the liquidation process, whethe r or not to relinquish its secured interest. In case it does so, its dues rank high in the waterfall mechanism. In case it chooses not to relinquish its security interest, and instead procee ds to enforce it without success or is unable to realize all its dues in the process of enforcement, ithas to then perforce stand lower in priority, and await distribution of assets upon realization of the liquidation estate, by the liquidator, vis-à-vis the balance of its dues. The procedure envisioned, thus, takes a nuanced approac h for the recovery of a secured creditor’s dues. In case they opt to relinquish the security, their priority is ranked hi gh; in case, they seek to enforce such security, subject to intimation and verification by the liquidator, they can proceed to do s o. In the event of short fall, they rank lower in priority. This app ears to be the reason, as is clear from the explanation provided in response to comments as a result of Parliamentary debates in 2018, that secured creditors opting not to relinquish their secur ity interest are “presumed that such secured creditors have recovere d most of their dues by enforcement of their security outs ide the liquidation proceedings”.27 There is sound logic in this, because those opting to ‘stand out’ and enforce security in terest, are ISPAT PRIVATE LIMITED & ORS. permitted to do so; in the event of excess recovery, they h ave to intimate and hand over such excess for distribution in li quidation proceeding; in case they are unable to recover their dues, for such of the dues as are outstanding, such secured cred itors are ranked low. The provisions of the IBC are carefully thought out, and give options to secured creditors, and balance their interests with those of other creditors in a liquidation proc eeding. [Paras 34-38][1249-F-G; 1250-A-F; 1251-A-B; 1256-B] Moser Baer Karamchari Union thr. President Mahesh Chand Sharma v. Union of India & Ors. (2023) SCC OnLine SC 547 – referred to.

1.3 By virtue of Section 56 of the 2003 Act, in the event of any person’s neglect “to pay any charge for electric ity or any sum other than a charge for electricity” payable “in res pect of supply, transmission or distribution or wheeling of elec tricity to him” (after a clear fifteen days’ notice in writing) “and without prejudice to his rights to recover such charge or ot her sum by suit”, a licensee (including a distribution licensee such as PVVNL) is empowered to disconnect electricity supply to such consumer or person. By virtue of Section 181(2)(x) of the 2003 Act, S tate Commissions are empowered to frame regulations. Secti on 50 empowers the State Commissions to frame the “Electricity Supply Code” to provide for recovery of electricity charges , intervals for billing of electricity charges, disconnection o f supply of electricity for non-payment, etc. These provisions in the 2003 Act and the respective Codes form the legal framewo rk for recovery of dues by various kinds of licensees unde r the 2003 Act. In the present case, the Uttar Pradesh State C ommission had framed the 2005 Supply Code. Clause 6.15 of the 2005 Code enacts that recovery of arrears shall be in accordance with the provisions of the Uttar Pradesh Government Elec trical Undertakings (Dues Recovery) Act, 1958. [Paras 39-4 1] [1256-B-G]

1.4 A recent ruling of this court in K.C. Ninan v. Kerala State Electricity Board examined the circumstances in which such a ‘charge’ could be constituted in law. This court hel d that the creation of a charge need not necessarily be based on an e xpress provision of the 2003 Act or plenary legislation, b ut could be created by properly framed regulations authorized un der the parent statute. In these circumstances, the argument of P VVNL that by virtue of Clause 4.3(f)(iv) of the Supply Code, rea d with the stipulations in the agreement between the parties , a charge was created on the assets of the corporate debtor, is merit ed. A careful reading of the impugned order of the NCLT also reve als that this position was accepted. This is evident from t he order of the NCLAT which clarified that PVVNL also came unde r the definition of ‘secured operational creditor’ as per law. This finding was not disturbed, but rather affirmed by the impugned or der. In these circumstances, the conclusion that PVVNL is a secured creditor cannot be disputed. [Paras 42, 43][1258-A-C] K.C. Ninan v. Kerala State Electricity Board 2023 SCC Online SC 603 – relied on.

1.4 The counsel for the liquidator had submitted that du es owed to PVVNL were technically owed to the “government”, a nd thus occupied a lower position in the order of priority of clearance. The expression “government dues” is not defined in the I BC - it finds place only in the preamble. However, what constitutes such dues is spelt out in the ‘waterfall mechanism’ unde r Section 53(1)(e), which inter alia states that, “Any amount d ue to the Central Government and the State Government including the amount to be received on account of the Consolidated Fu nd of India and the Consolidated Fund of the State” ranks lower in priority to the class of creditors described in Clauses ( a) to (d) of Section 53(1). Thus, there exists a separate enumer ation or specification of the Central Government and State Gover nment dues, as a class apart from other creditors, including creditors who may have secured interest (in respect of which amount s may be payable to them). The repeated reference of lowering of priority of debts to the government, on account of statutory tax, or other dues payable to the Central Government or State Governm ent, or amounts payable into the Consolidated Fund on acc ount of either government, in the various reports which prece ded the enactment of the IBC, as well as its Preamble, means th at these dues are distinct and have to be treated as separate from those owed to secured creditors. The Central Government and State Government are defined by the General Clauses Act, 1897. The ISPAT PRIVATE LIMITED & ORS. former is defined by Section 3(8), 32 and latter by Section 3 (60). [Para 44][1258-D-G] Shrikant v. Vasantrao & Ors. [2006] 1 SCR 496 – referred to.

1.5 The specific mention of other class of creditors whose dues are statutory, such as dues payable to workmen or employees, “the provident fund, the pension fund, t he gratuity fund” under Section 36(4), which excludes these enu merated amounts from the liquidation, especially clarifies that not all dues owed under statute are treated as ‘government’ dues. I n other words, dues payable to statutory corporations which do not fall within the description “amounts due to the central or state government” such as for instance amounts payable to corporations created by statutes which have distinct juristic entity but whose dues do not constitute government dues payable or those payab le into the respective Consolidated Funds stand on a d ifferent footing. Such corporations may be operational creditors or financial creditors or secured creditors depending on the natur e of the transactions entered into by them with the corporate d ebtor. On the other hand, dues payable or requiring to be credited to the Treasury, such as tax, tariffs, etc. which broadly fall withi n the ambit of Article 265 of the Constitution are ‘government dues’ and therefore covered by Section 53(1)(f) of the IBC. PVVNL undoubtedly has government participation. However, th at does not render it a government or a part of the ‘State Governmen t’. Its functions can be replicated by other entities, both private and public. The supply of electricity, the generation, transmission, and distribution of electricity has been liberalized i n terms of the 2003 Act barring certain segments. Private entities are entitled to hold licenses. In this context, it has to be emp hasized that private participation as distribution licensees is fairly widespread. For these reasons, it is held that in the present c ase, dues or amounts payable to PVVNL do not fall within the descrip tion of Section 53(1)(f) of the IBC. [Paras 46, 47][1261-B-G] Municipal Commissioner of Dum Dum Municipality & Ors. v. Indian Tourism Development Corporation & Ors. 1995

(5) SCC 251 : [1995] 2 Suppl. SCR 433 – relied on.

1.6 Section 53 enacts the waterfall mechanism providing for the hierarchy or priority of claims of various classes o f creditors. The careful design of Section 53 locates amounts payable to secured creditors and workmen at the second place, after the costs and expenses of the liquidator payable during the liqui dation proceedings. However, the dues payable to the govern ment are placed much below those of secured creditors and eve n unsecured and operational creditors. This design was either not brought to the notice of the court in Rainbow Papers or was missed altogether. In any event, the judgment has not taken note of the p rovisions of the IBC which treat the dues payable to secured cred itors at a higher footing than dues payable to Central or State Government. The Gujarat Value Added Tax Act, 2003 no doubt creates a charge in respect of amounts due and payable or arrears. It would be possible to hold [in the absence of a specific enum eration of government dues as in the present case, in Section 53(1)( e)] that the State is to be treated as a ‘secured creditor’. However, the separate and distinct treatment of amounts payable to s ecured creditor on the one hand, and dues payable to the govern ment on the other clearly signifies Parliament’s intention to treat the latter differently-and in the present case, having lower prior ity. This intention is also evident from a reading of the preamble to the Act itself. When an enactment uses two different expres sions, they cannot be construed as having the same meaning . [Paras 49-51][1262-G-H; 1263-A-E] State Tax Officer v. Rainbow Papers Ltd. [2022] 13 SCR 808 – distinguished. Brihan Mumbai Mahanagarpalika & Anr. v. Willington Sports Club & Ors. [2013] 16 SCR 216 – referred to.

1.7 Section 238 of the IBC overrides the provisions of the Electricity Act, 2003 despite the latter containing two specific provisions which open with non-obstante clauses (i.e ., Section 173 and 174). [Para 52][1263-F-G] Sundaresh Bhatt, Liquidator of ABG Shipyard v. Central Board of Indirect Taxes and Customs 2022 SCC Online SC 1101;Duncans Industries Ltd. v. AJ Agrochem(2019) 9 SCC 725 : [2019] 12 SCR 830 – relied on. ISPAT PRIVATE LIMITED & ORS. Innoventive Industries Ltd. v. ICICI Bank &Anr. [2017] 8 SCR 33; CIT v. Monnet Ispat& Energy Ltd. (2018) 18 SCC 786; Ghanashyam Mishra & Sons (P) Ltd. v. Edelweiss Asset Reconstruction Co. Ltd. [2021] 13 SCR 737; Jagmohan Bajaj v. Shivam Fragrances Private Limited 2018 SCC OnLine NCLAT 413 – referred to.

1.8 Section 78 enacts, that when a company whose property is subject to charge, fails to register it, the charge h older (or the person entitled to the charge over the company’s as sets) can seek its registration. Section 3 (31) of the IBC defi nes “security interest” in the widest terms. In this court’s opinion, the liquidator cannot urge this aspect at this stage, because of the conc urrent findings of the NCLT and the NCLAT that PVVNL is a secu red creditor. [Para 55][1266-E] Board of Trustees, Port of Mumbai v. Indian Oil Corporation [1998] 2 SCR 774; Jitender Nath Singh v. Official Liquidator & Ors. [2012] 13 SCR 339; ICICI Bank Ltd. v. Sidco Leathers Ltd. [2006] Supp 1 SCR 528; Jalgaon Janta Shakari Bank Ltd. v. Joint Commissioner of Sales Tax, Nodal 9, Mumbai & Anr. 2022 SCC OnLine Bom 1767; The West Bengal State Electricity Distribution Company Limited v. Sri Vasav i Industries Limited & Anr. 2022 SCC Online Cal 1918; Union of India & Ors. v. Shah Goverdhan L. Kabra Teachers’ College [2002] Supp 3 SCR 220; UCO Bank & Anr. v. Dipak Debbarma & Ors. [2016] 11 SCR 723; Swiss Ribbons (P) Ltd. v. Union of India (2019) 4 SCC 17 : [2019] 3 SCR 535;K. Shashidhar v. Indian Overseas Bank [2019] 3 SCR 845; Committee of Creditors of Essar Steel India Limited v. Satish Kumar Gupta & Ors. [2019] 16 SCR 275; Member, Board of Revenue v. Anthony Paul Benthall [1955] 2 SCR 842 – referred to. The Bankruptcy Law Reforms Committee Report, (2015), Heading 5.5.8-Establishing Priority of Payout in Liquidation; Report of the Insolvency Law Committee

(2020)- Heading 7.3-Realisation or Relinquishment of Security Interest by a Secured Creditor (pg. 76) – referred to. Case Law Reference [1998] 2 SCR 774 referred to Para 7 [2022] 13 SCR 808 distinguished Para 9 [2012] 13 SCR 339 referred to Para 15 [2006] Supp 1 SCR 528 referred to Para 15 [2002] Supp 3 SCR 220 referred to Para 18 [2016] 11 SCR 723 referred to Para 18 [2017] 8 SCR 33 referred to Para 18 [2019] 3 SCR 535 referred to Para 18 [2019] 3 SCR 845 referred to Para 22 [2019] 16 SCR 275 referred to Para 22 [2006] 1 SCR 496 referred to Para 44 [1995] 2 Suppl. SCR 433 relied on Para 45 [1955] 2 SCR 842 referred to Para 51 [2013] 16 SCR 216 referred to Para 51 [2019] 12 SCR 830 relied on Para 52

(2018) 18 SCC 786 referred to Para 52 [2021] 13 SCR 737 referred to Para 52 CIVIL APPELLATE JURISDICTION: Civil Appeal No. 7976 of 2019. From the Judgment and Order dated 15.05.2019 of the National Company Law Appellate Tribunal in CAAT No. 639 of 2018. Pradeep Misra, Daleep Dhyani, Bhuwan Nchand, Suraj Singh, Manoj Kumar Sharma, Advs. for the Appellant. Arvind Kumar Gupta, Ms. Henna George, Ms. Shivani Sharma, Ms. Purti Gupta, Advs. for the Respondents. The Judgment of the Court was delivered by

S. RAVINDRA BHAT, J.

¶1The appellant Paschimanchal Vidyut Vitran Nigam Limited (hereinafter, “PVVNL”) is aggrieved by an order of the National ISPAT PRIVATE LIMITED & ORS. Company Law Appellate Tribunal (hereinafter, “NCLAT ”)1 which rejected its appeal against an order of the National C ompany Law Tribunal, Allahabad (hereinafter, “NCLT”/ “Adjudicating Authority”),2 which allowed an application directing the District M agistrate and Tehsildar, Muzaffarnagar to immediately release property (which was previously attached at the request of the appellant) in favour of the liquidator of the respondent Raman Ispat Pvt. Ltd. (hereinafter, “corporate debtor”) for enabling its sale, and after realisation of its value, for distributing the proceeds in accordance with the provisi ons of the Insolvency and Bankruptcy Code, 2016 (hereinafter, “IBC” / “Code”). I. FACTS

¶2The parties had entered into an agreement on 11.02.2010 for supply of electricity. Clause 5 of the agreement provided that: “The outstanding dues will be a charge on the assets of the company. Before sale is made, the outstanding dues wi ll be cleared and, (in) the alternative the deed to agreements/sale will specifically mention the outstanding dues and the method of its payment.”

¶3PVVNL raised bills for supply of electricity to the corp orate debtor from time to time. Since the dues remained unpaid, PVVNL attached the corporate debtor’s properties by Order No. 1048, dated

12.01.2016. The Tehsildar, Muzaffarnagar by Order No. 1423F dated

23.01.2016, restrained transfer of property by sale, donation or any other mode, and also created a charge on the properties. The corporate debtor initially underwent resolution process under the IBC, however that process was not successful. It therefore became subject to liquidation.

¶4Under the final bill dated 27.01.2017, the total arrears due were 4,32,33,883/-. Of this, the District Collector issued notice for recovery of outstanding dues to the tune of 2,50,14,080/-, by auction of movable and immovable properties located at Khasara No. 0.4710, on 05.03.2018. The liquidator alleged that unless the attachment orders of the District Collector, Muzaffarnagar and Tehsildar, Muzaffarnagar were set aside by the NCLT, no buyer would purchase the property of the corpor ate debtor due to uncertainty about the authority of the liquidator to sell the property. The liquidator also took the plea that PVVNL’s claim would 1 Company Appeal (AT) (Insolvency) No. 639 of 2018, dated 15.05.2019. 2 C.A. No. 88/ALD/2018 in CP No. (IB) 23/ALD/2017, d ated 21.08.2018. be classified in order of priority prescribed under Section 53 of the IBC, and PVVNL would be entitled to pro rata distribution of proceeds along with the other secured creditors from sale of liquidation assets.

¶5The liquidator’s position ultimately led the NCLAT to direct the District Magistrate and Tehsildar, Muzaffarnagar to immediately release the attached property in its favour so as to enable sale of the property, and after realisation of the property’s value, to ensure its distribution in accordance with the relevant provisions of the IBC. The NCLAT also endorsed NCLT’s reasoning that PVVNL fell within the defi nition of ‘operational creditor’, which could realize its dues in the liquidation process in accordance with the law. II. PVVNL’S ARGUMENTS

¶6Mr. Pradeep Mishra, learned advocate for PVVNL, submitted that Sections 173 and 174 of the Electricity Act, 2003 (hereinafter, “2003 Act”) had an overriding effect on all other laws except Consumer Protection Act, 1986; the Atomic Energy Act,1962; and the Railw ay Act, 1989. Being a special law relating to all aspects of electricity – generation, transmission, distribution and adjudication of disputes– it had primacy over all other laws, including the IBC, which was a ‘general’ law dealing with corporate insolvency implemented much later. In terms of the 2003 Act, and the regulations framed under it, including the Uttar Pradesh Electricity Supply Code, 2005 (hereinafter, “2005 Code”), a special mechanism for recovery of electricity dues existed. The rights of electricity suppliers like PVVNL, therefore, were n ot subordinate and subject to the ‘priority of claims’ mechanism und er the IBC. Therefore, PVVNL could opt to independently stay out of the liquidation process and recover its dues.

¶7Learned counsel relied on the judgment of this court in Board of Trustees, Port of Mumbai v. Indian Oil Corporation, 3 wherein this court had ruled that port dues, under the Major Port Trust Act, 1 963 overrode all other claims, including those of secured creditors in liquidation proceedings. Learned counsel urged that Section 238 of IBC could not override Sections 173 and 174 of the 2003 Act, since the latter (i.e. the Electricity Act) is a special enactment, and would prevail over the IBC, which is a later general law, dealing with insolvency.

¶8Counsel urged that provisions of the 2003 Act (Sections 42, 45 and 56) and the 2005 Code (Clauses 4.3 and 6.15), pres cribed the 3Board of Trustees, Port of Mumbai v. Indian Oil Corporation, 1998 (2) SCR 774. mechanism for recovery of electricity charges. The 2003 Act b eing a ‘special Act’ with a non-obstante clause, would have an overriding effect over the ‘general’ IBC law. This mechanism for speedy r ecovery of electricity dues, had to be given full effect. Thus, the provisions of IBC and the priority of claims under it in liquidation proceedings, were separate and applied in respect of other amounts available for distribution, after the recovery of electricity dues were permitted under the 2003 Act and 2005 Code.

¶9Learned counsel also relied upon the decision of this court in State Tax Officer v. Rainbow Papers Ltd., 4 in which this court held that by virtue of a security interest created in favour of the government for tax claims under the Gujarat Value Added Tax Act, 2003, tax authorities i.e., the government, was a secured creditor under the IBC. Thi s court held that if a resolution plan excluded such tax or statutory dues payable to the government, it would not bein conformity with the provisions of the IBC and, as such, would not be binding on the State.

¶10Alternatively, the learned counsel submitted that electri city dues were also ‘security interests’ in favour of ele ctricity service providers. He relied on the definition of ‘secured creditor’ which meant “a creditor in favour of whom security interest is creat ed.”5 Such ‘security interest’ was defined under the IBC as: “Right, title or interest or a claim in a property, created in favour of, or provided for a secured creditor by a transaction which secures payment or performance of an obligation and includes mortgage, charge, hypothecation, assignmen t and encumbrance or any other agreement or arrangement securing payment or performance of any obligation o f any person.” 6

¶11‘Claim in a property’ section of the definition could be invoked when one secured payment or performance of any obligation under the law. Additionally, the term “transfer” was defined under the IBC to mean: “Includes sale, purchase, exchange, mortgage, pledg e, gift, loan or any other form of transfer of right, title, possession or lien.” 7 4State Tax Officer v. Rainbow Papers Ltd., 2022 (13) SCR 808. 5 Section 3 (30), IBC. 6 Section 3 (31), IBC. 7 Section 3 (34), IBC.

¶12It was urged that a reading of the definitions of ‘security interest’ and ‘transfer’ indicated that the intent of the IBC was to include, in the concept of ‘security interest’, all claims, including statutory claims arising in law, against the corporate debtor. Thus, obligations and stat utory charges were also ‘security interests’. III. LIQUIDATOR’S ARGUMENTS

¶13Mr. Arvind Kumar Gupta, learned advocate appearing for the liquidator, argued that under the IBC, creditors were classified either as secured or unsecured. Further, a highlight of the IBC was the distinction between the financial and operational creditors, and their di fferential treatment with regards to recovery. He submitted that the Bankruptcy Law Reforms Committee Report,2015 and the UNCITRAL Legislative Guide on Insolvency Law, stipulate that government dues were not given priority under the IBC. This formed the backdrop of the legislation. In fact, the Statement of Objects and Reasons to the IBC stipulates alteration in the priority of payment of government dues.

¶14It was argued that in terms of Section 52(3), before realization of security interest by secured creditors, the liquidator had to verify the existence of security interest from the records main tained by an information utility or by such other means as may be specif ied by the Insolvency and Bankruptcy Board of India (hereinafter, “Board / IBBI”).8 The existence of a security interest could be proved by a secured creditor in terms of Regulation 21,IBBI (Liquidation Process) Regulations, 2016 (hereinafter, “Liquidation Regulations”).

¶15Learned counsel submitted that the registration of any charge was mandatory under Section 77 of the Companies Act , 2013 (corresponding to Section 125 of the erstwhile Companies Act, 1956). It was highlighted that Section 48 of the Transfer of Property A ct, 1882 (hereinafter, “TPA”) dealt with priority of rights, and inter-se priorities amongst creditors prevailed in the distribution of assets in liquidation proceedings. Counsel referred to this court’s judgments of Jitender Nath Singh v. Official Liquidator & Ors. 9 and ICICI Bank Ltd. v. Sidco Leathers Ltd. 10 8 The Insolvency and Bankruptcy Board of India is es tablished under Section 188 of the IBC. Is powersare enumerated under Section 196. 9Jitender Nath Singh v. Official Liquidator & Ors., 2012 (13) SCR 339. 10ICICI Bank Ltd. v. Sidco Leathers Ltd ., 2006 Supp (1) SCR 528

¶16It was submitted that government dues were placed in t he ‘waterfall mechanism’ under Section 53(1)(e)(i) of the IBC. Learned counsel emphasized that even under the old Companies Act, 1956, Section 529A provided priority to the debts due to the secured creditors and the workers, and Section 530 made payment of taxes subject to the priority embodied in Section 529A. Similarly, priority of debts due to sec ured creditors and workers was reflected under Section 326 of the Companies Act, 2013.Section 327 made payment of taxes subject to the p riority embodied in Section 326. It was urged that Section 26E of the Securitization of Financial Assets and Enforcement of Security Interest Act, 2002 (hereinafter, “SARFAESI Act”) and Section 3 1B of the Recovery of Debts Due to Banks and Financial Institutions A ct, 1993 (hereinafter, “RDDBFI Act”) accorded priority to secured creditors over other dues. The Full Bench judgment of the Bombay High Court in Jalgaon Janta Shakari Bank Ltd. v. Joint Commission er of Sales Tax, Nodal 9, Mumbai & Anr., 11 reinforced the priority accorded to secured creditors under Section 26E of SARFAESI Act.

¶17Learned counsel submitted that electricity dues did not enjoy any priority, and cited High Court rulings, especially the judgment of the Calcutta High Court in The West Bengal State Electricity Distribution Company Limited v. Sri Vasavi Industries Limited & A nr.12 It was submitted that creation of charge under a law was a mat ter of fact which had to be proved. In the present case, the statute (the 2005 Code) merely enabled recovery of electricity dues as though they were recovery of arrears of revenue. That did not result in the creation of ‘ security interest’ in favour of the appellant. Moreover, such interest was not registered in accordance with the Liquidation Regulations and Section 77 of the Companies Act, 2013.

¶18Learned counsel urged that in case of apparent overlapping between the two entries, the doctrine of ‘pith and substance’ had to be applied to find out the true nature of the legislation and the entry within which it fell – reliance was placed on the decisions of Union of India & Ors. v. Shah Goverdhan L. Kabra Teachers’ College 13 and UCO 11 Jalgaon Janta Shakari Bank Ltd. v. Joint Commission er of Sales Tax , Nodal 9, Mumbai & Anr., 2022 SCC OnLine Bom 1767. 12The West Bengal State Electricity Distribution Company Limited v. Sri Vasavi Industries Limited & Anr.,2022 SCC Online Cal 1918 13Union of India & Ors. v. Shah Goverdhan L. Kabra Teachers’ College, (2002) Supp

(3) SCR 220. Bank & Anr. v. Dipak Debbarma & Ors. 14. Having regard to this principle, IBC was thus a special law dealing with the enti re subject matter of insolvency, bankruptcy and winding up of comp anies. Its provisions were later than those of the 2003 Act. Despite Sections 173 and 174 of the 2003 Act, by virtue of Section 238 of IBC, the provisions of the latter would prevail and have overriding effect. It was submitted that the law under IBC was constantly evolving since its ince ption in 2016. Reliance was placed on Innoventive Industries Ltd. v. ICICI Bank & Anr.,15 and Swiss Ribbons (P) Ltd. v. Union of India 16 which upheld the IBC, and emphasized the overriding nature of the enactment, by virtue of Section 238. IV. ANALYSIS A. SCHEME OF THE IBC

¶19The IBC was enacted with the objective of unifying the legal regime on commercial insolvency. Upon a corporate debtor’s default17 in repayment of a debt, 18 the insolvency resolution process can be triggered when the value of the default crosses the statutory threshold (Section 4); or it may be initiated by the corporate debtor itself or a financial creditor or operational creditor (Section 6). IBC makes a distinction between debts owed to both these classes of c reditors. A financial creditor has been defined under Section 5(7) as, “A person to whom a financial debt is owed”. A “financial debt” is defined by Section 5(8) as a debt which is disbursed against consideration for the time value of money. On the other hand, an operational creditor is one to whom an operational debt is owed. “Operational debt” under Section 5(21) is “a claim in respect of provision of goods or services” .

¶20Sections 7 and 8 of the IBC control the initiation of insolvency process by financial creditors and operational credit ors respectively. The corporate debtor can contest a debt within a stipulated time period. The Adjudicating Authority has to determine the existence of a default from the records of the information utility or on the basis of evidence 14UCO Bank & Anr. v. Dipak Debbarma & Ors., (2016) (11) SCR 723. 15Innoventive Industries Ltd. v. ICICI Bank & Anr ., (2017) 8 SCR 33. 16Swiss Ribbons (P) Ltd. v. Union of India (2019) 4 SCC 17. 17 Default is defined in Section 3(12) in wide terms as, “Non-payment of debt when whole or any part or instalment of the amount of debt has become due and payable and is not paid by the debtor or the corporate debtor, as the case may be”. 18Per Section 3(11), which states that a debt is, “A liability of obligation in respect of a ‘claim’”. A ‘claim’ is inter alia defined under Section 3(6) as, “A right to payment”. furnished by the creditors, and communicate the same to the corporate debtor – this initiates the resolution process, which must be completed within 180 days from the date of admission of the application (Section 12), and can be extended beyond 180 days for a further peri od of not exceeding 90 days if the committee of creditors (hereina fter, “CoC”) by a vote of 75% of voting shares so decides. Speedy resolution t hus forms the mainstay of the entire resolution process. U pon admission of the application, a moratorium under Section 14 of th e Code is to be declared by the Adjudicating Authority followed by a public announcement indicating the last date for submission of claims, along with the details of the interim resolution professiona l (hereinafter, “IRP”). The management of the corporate debtor as a going concern on the instructions of the CoC is vested in the IRP (and later under the RP under Section 28), who is a trained person registered under Chapter IV of IBC, per Section 17. The CoC’s decisions have to be taken by a vote of not less than 75% of the voting share of fina ncial creditors. Anyone interested or willing to put the corporate debt or back to its rails can, under Section 30, submit a resolution plan to the RP, prepared on the basis of an information memorandum. When such a plan is approved by the CoC, the Adjudicating Authority has to record satisfaction of the same – it then becomes binding o n the corporate debtor as well as its employees, members, creditors, guarantors and other stakeholders. Immediately upon approval of the resolution plan, the moratorium order passed by the Authority under Section 14 ceases to have effect.

¶21When the resolution process does not yield any success, or no application is received, and in certain other situations, the corporate debtor enters into the liquidation phase. This is provided by Section 33 of the IBC, which is extracted below: “Section 33 - Initiation of liquidation

(1) Where the Adjudicating Authority, —

(a) before the expiry of the insolvency resolution process period or the maximum period permitted for completi on of the corporate insolvency resolution process under section 12 or the fast track corporate insolvency resolution p rocess under section 56, as the case may be, does not rece ive a resolution plan under sub-section (6) of section 30; or

(b) rejects the resolution plan under section 31 for the non-compliance of the requirements specified therein, it s hall—

(i) pass an order requiring the corporate debtor to be liquidated in the manner as laid down in this Chapter;

(ii) issue a public announcement stating that the co rporate debtor is in liquidation; and

(iii) require such order to be sent to the authority with which the corporate debtor is registered.

(2) Where the resolution professional, at any time during t he corporate insolvency resolution process but before confirmation of resolution plan, intimates the Adju dicating Authority of the decision of the committee of credi tors 2[approved by not less than sixty-six per cent. of th e voting share] to liquidate the corporate debtor, the Adjud icating Authority shall pass a liquidation order as referred to in sub-clauses (i), (ii) and (iii) of clause (b) of sub-section (1). Explanation-For the purposes of this sub-section, it is he reby declared that the committee of creditors may take the deci sion to liquidate the corporate debtor, any time after its constitution under sub-section (1) of section 21 and before the confirmation of the resolution plan, including at a ny time before the preparation of the information memorandum.

(3) Where the resolution plan approved by the Adjud icating Authority 4[under section 31 or under sub-section ( 1) of section 54L,] is contravened by the concerned corpo rate debtor, any person other than the corporate debtor, whose interests are prejudicially affected by such contravention, may make an application to the Adjudicating Authority f or a liquidation order as referred to in sub-clauses (i) , (ii) and

(iii) of clause (b) of sub-section (1).

(4) On receipt of an application under sub-section (3), i f the Adjudicating Authority determines that the corporate d ebtor has contravened the provisions of the resolution plan, it shall pass a liquidation order as referred to in sub-clauses (i), (ii) and (iii) of clause (b) of sub-section (1).

(5) Subject to section 52, when a liquidation order has been passed, no suit or other legal proceeding shall be i nstituted by or against the corporate debtor: Provided that a suit or other legal proceeding may be instituted by the liquidator, on behalf of the corporate debtor, with the prior approval of the Adjudicating Authority.

(6) The provisions of sub-section (5) shall not apply t o legal proceedings in relation to such transactions as may be notifi ed by the Central Government in consultation with any financial sector regulator.

(7) The order for liquidation under this section shall be deemed to be a notice of discharge to the officers, employ ees and workmen of the corporate debtor, except when the bu siness of the corporate debtor is continued during the liq uidation process by the liquidator.”

¶22According to the judgment of this court K. Shashidhar v. Indian Overseas Bank 19 the Adjudicating Authority is, “obligated to initiate liquidation process under Section 33(1) of the I&B Code.” It was also held that the Parliament did not empower the Adjudicating Authority “with the jurisdiction or authority to analyse or evaluate the commercial decision of the CoC much less to enquir e into the justness of the rejection of the resolution plan by the dissenting financial creditors.” Thus, on occurrence of any eventuality specified under Section 33, the liquidation process has to begin, as a mat ter of course – there is no choice in the matter. Again, i n Committee of Creditors of Essar Steel India Limited v. Satish Ku mar Gupta & Ors.,20 this court rejected the argument that the NCLT possessed any discretionary jurisdiction with regard to initiation of liquidation proceedings, upon an interpretation of Sections 30, 31(2) and 60(5)(c) of IBC.

¶23Upon initiation of liquidation, a liquidator has to be appointed, to carry out the liquidation process and manage other affair s of the corporate debtor. The RP, appointed to conduct the resolution process, is ordinarily appointed as liquidator. The powers and duties of liquidator 19K. Shashidhar v. Indian Overseas Bank , 2019 (3) SCR 845. 20Committee of Creditors of Essar Steel India Limited v. Satish Kumar Gupta & Ors., 2019 (16) SCR 275. are prescribed by Section 35 21 of the IBC. It includes verification of claims of creditors, evaluation of assets of the corporate debtor, carrying on the business of the corporate debtor, taking into considera tion the assets of the corporate debtor, etc. The liquidator has to issue a pu blic announcement within 5 days from appointment in a prescribed format; the purpose of public announcement is to call upon creditors and others persons to submit their claims in relation to the corporate debtor. The creditors of the corporate debtor have to send their claims within 30 days from the initiation of the liquidation process. After the r eceipt of the claims, the liquidator has to verify the claims submitted by the creditors (Section 39). The liquidator may also ask the creditors to subm it any evidence in relation to their claims for the purpose of verification. The liquidator is empowered to either admit or reject the claims on the basis of due verification. If the liquidator rejects or admits a claim of a creditor, the same has to be communicated to the creditor as well as the corporate debtor within 7 days from such decision (Section 40). The liquidator has to concurrently determine what constitutes the “liquidation estate”. Section 36 (3) lists out the various assets and claims, etc . which form the liquidation estate.22After the admission of claims, the liquidator has to determine the value of the claims, for the purpose of distribution of assets of the corporate debtor. 21"35. Powers and duties of liquidator.— (1) Subject to the directions of the Adjudicating Authority, the liquidator shall have the following powers and duties, namely:-

(a) to verify claims of all the creditors;

(b) to take into his custody or control all the ass ets, property, effects and actionable claims of the corporate debtor; ********************* *********************

(d) to take such measures to protect and preserve t he assets and properties of the corporate debtor as he considers necessary;

(e) to carry on the business of the corporate debtor for its beneficial liquidation as he considers necessary;

(f) subject to section 52, to sell the immovable an d movable property and actionable claims of the corporate debtor in liquidation by public auction or private contract, with power to transfer such property to any person or body corporate, or to sell the same in parcels in such manner as may be specified: Provided that the liquidator shall not sell the imm ovable and movable property or actionable claims of the corporate debtor in liquidation to any person who is not eligible to be a resolution applicant;” 22 Section 36 (3) enumerates the liquidation estate as comprising of the following: “(a) any assets over which the corporate debtor has ownership rights, including all rights and interests therein as evidenced in the balance sheet of the corporate debtor or an information utility or records in the registry or any depository recording securities

¶24In terms of Regulation 47 of the Liquidation Regulations, liquidation proceedings should be completed within 1 year from the date of its initiation. This contrasts with the extendable time limit of 330 days, for the resolution process under IBC.

¶25During the insolvency resolution process, a secured creditor is not permitted to realize its dues by initiating any proceeding. This is by virtue of Section 14 (1) (c) which enables the imposition of a moratorium period, during which a secured creditor is precluded from bringing any action to foreclose, recover or enforce any security interes t. Secured creditors’ rights are restored only in the event of failure of the insolvency resolution process, at the stage of liquidation. B. THE ‘WATERFALL MECHANISM’

¶26Section 53 of the IBC, which contains the ‘wate rfall mechanism’, provides for the order of distribution of assets. It states as follows: “(1) Notwithstanding anything to the contrary contain ed in any law enacted by the Parliament or any State Legislature fo r the time being in force, the proceeds from the sale of the liquidation assets shall be distributed in the following order of priority a nd within such period and in such manner as may be specified, namely:—

(a) the insolvency resolution process costs and the liquidation costs paid in full; of the corporate debtor or by any other means as ma y be specified by the Board, including shares held in any subsidiary of the corporate debtor;

(b) assets that may or may not be in possession of the corporate debtor including but not limited to encumbered assets;

(c) tangible assets, whether movable or immovable;

(d) intangible assets including but not limited to intellectual property, securities (including shares held in a subsidiary of the corporate debtor) and financial instruments, insurance policies, contractual rights;

(e) assets subject to the determination of ownership by the court or authority;

(f) any assets or their value recovered through proceedings for avoidance of transactions in accordance with this Chapter;

(g) any asset of the corporate debtor in respect of which a secured creditor has relinquished security interest;

(h) any other property belonging to or vested in the corporate debtor at the insolvency commencement date; and

(i) all proceeds of liquidation as and when they are realised.”

(b) the following debts which shall rank equally between and among the following:—

(i) workmen’s dues for the period of twenty-four mo nths preceding the liquidation commencement date; and

(ii) debts owed to a secured creditor in the event such secured creditor has relinquished security in the manner se t out in section 52;

(c) wages and any unpaid dues owed to employees other than workmen for the period of twelve months preceding t he liquidation commencement date;

(d) financial debts owed to unsecured creditors;

(e) the following dues shall rank equally between and among the following:-

(i) any amount due to the Central Government and the State Government including the amount to be received on account of the Consolidated Fund of India and the Consolidated Fund of a State, if any, in respect of the whole or any pa rt of the period of two years preceding the liquidation commencement date;

(ii) debts owed to a secured creditor for any amount un paid following the enforcement of security interest;

(f) any remaining debts and dues;

(g) preference shareholders, if any; and

(h) equity shareholders or partners, as the case may be.

(2) Any contractual arrangements between recipients under sub-section (1) with equal ranking, if disrupting the ord er of priority under that sub-section shall be disregarde d by the liquidator.

(3) The fees payable to the liquidator shall be ded ucted proportionately from the proceeds payable to each c lass of recipients under sub-section (1), and the procee ds to the relevant recipient shall be distributed after s uch deduction. Explanation-For the purpose of this section—

(i) it is hereby clarified that at each stage of the distri bution of proceeds in respect of a class of recipients tha t rank equally, each of the debts will either be paid in full, or wi ll be paid in equal proportion within the same class of recipie nts, if the proceeds are insufficient to meet the debts in ful l; and

(ii) the term “workmen’s dues” shall have the same meaning as assigned to it in section 326 of the Companies Act , 2013 (18 of 2013).”

¶27The priority of claims, indicated in the hierarchy of preferences, under the waterfall mechanism is therefore: Firstly, insolvency resolution process costs and the liquidation costs; Secondly, workmen’s dues for the period of 24 months preceding the liquidation commencement date and debts owed to a secured creditor in the event such secured creditor has relinquished security; Thirdly, wages and any unpaid dues owed to employees other than workmen for the period of 12 months preceding the liquidation commencement date; Fourthly, financial debts owed to unsecured creditors; Fifthly, any amount due to the central government and the state government and debts owed to a secured creditor for any amount unpaid following the enforcement of security interest; Sixthly, any remaining debts and dues; Seventhly, preference shareholders; and Eighthly equity shareholders or partners. This hierarchy or order of priority thus accords government debts [clause(e)] and operational debts [clause(f)] lower priority than dues owed to unsecured financial creditors.

¶28Debts owed to a secured creditor, whenever such secured creditor “has relinquished security in the manner set out in section 52” receive a fairly high priority (immediately after insolvency resolution process costs), whereas in other cases, i.e., when the sec ured creditor does not relinquish security, the priority of claim is lower [Section 53

(1) (e) (ii)] in respect of “any amount unpaid following the enforcement of security interest”. Another feature is that amounts due to the government (i.e., payable into the Consolidated Fund of India or Consolidated Fund of a State) are ranked in the same manner as those of secured creditors who do not relinquish their security interest [Section 53 (1) (e) (ii)].

¶29The Bankruptcy Law Reforms Committee Report, 2015, which led to the framing and later enactment of IBC, pertinently stated that: “The Committee has recommended to keep the right of the Central and State Government in the distribution waterfall in liquidation at a priority below the unsecured finan cial creditors in addition to all kinds of secured credi tors for promoting the availability of credit and developing a marke t for unsecured financing (including the development o f bond markets). In the long run, this would increase the availabilit y of finance, reduce the cost of capital, promote entrepreneurship and lead to faster economic growth. The government also w ill be the beneficiary of this process as economic grow th will increase revenues. Further, efficiency enhancement and consequent greater value capture through the propos ed insolvency regime will bring in additional gains to both the economy and the exchequer.” ************* ************* ************* “For the remaining creditors who participate in the colle ctive action of Liquidation, the Committee debated on the waterfall of liabilities that should hold in Liquidation in the new Code. Across different jurisdictions, the observation is that secured creditors have first priority on the realizations, and that t hese are typically paid out net of the costs of insolvency re solution and Liquidation. In order to bring the practices in India in-line with the global practice, and to ensure that the obje ctives of this proposed Code is met, the Committee recommends that the waterfall in Liquidation should be as follows:

¶1Costs of IRP and liquidation.

¶2Secured creditors and Workmen dues capped up to t hree months from the start of IRP.

¶3Employees capped up to three months.

¶4Dues to unsecured financial creditors, debts pay able to workmen in respect of the period beginning twelve m onths before the liquidation commencement date and ending th ree months before the liquidation commencement date;

¶5Any amount due to the State Government and the Central Government in respect of the whole or any part of the p eriod of two years before the liquidation commencement date; any debts of the secured creditor for any amount unpaid following the enforcement of security interest

¶6Remaining debt

¶7Surplus to shareholders.” 23

¶30The explanation to this appears in the Report of the Insolvency Law Committee (2020):24 “7.3. The Committee noted that the Code aims to promote a collective liquidation process, and towards this en d, it encourages secured creditors to relinquish their se curity interest, by providing them second-highest priority in the recovery of their dues, as under Section 53(1)(b). Thus, they are not treated as ordinary unsecured creditors und er the Code, as they would have been under the Companies A ct, 1956. It was noted that, to some extent, this provision intend s to replicate the benefits of security even where it has been relinquished, in order to promote overall value maximisation. However, even if secured creditors realise their se curity interest, they would only recover to the extent of their sec urity interest, and would claim any excess dues remaining unpaid under Section 53(1)(e) of the liquidation waterfall. Thu s, the Committee was of the view that this provision could not have been intended to provide secured creditors who reli nquish their security interest, priority of repayment over the ir entire debt regardless of the extent of their security int erest, as it would tantamount to respecting a right that has never existe d. Further, if the “debts owed to a secured creditor” is not restricted to the extent of the security, there would be broad scope for misuse of the priority granted under Sect ion 52(1)(b), as even creditors who are not secured to the full extent of their debt would rely on the mere fact of holding any form of security, to recover the entire amount of their unpaid dues in priority to all other stakeholders.

7.4. On the basis of the above discussion, the Comm ittee agreed that the priority for recovery to secured creditors under 23 The Bankruptcy Law Reforms Committee Report (2015), Heading 5.5.8 – Establishing Priority of Payout in Liquidation. 24 Report of the Insolvency Law Committee (2020) – He ading 7.3 – Realisation or Relinquishment of Security Interest by a Secured Cr editor (pg. 76). Section 53(1)(b)(ii) should be applicable only to the extent of the value of the security interest that is relinqui shed by the secured creditor. The Committee was of the opinion that this issue stands clarified in terms of the reasoning provided above and does not necessitate any further amendment to t he provisions of the Code. ”

¶31The Preamble to the IBC expressly recognizes the shift in the law, with respect to ordering priority of claims, especially with respect to government dues: “An Act to consolidate and amend the laws relating t o reorganization and insolvency resolution of corporate persons, partnership firms and individuals in a time bound m anner for maximization of value of assets of such persons, to pr omote entrepreneurship, availability of credit and balance the interests of the stakeholders including alteration in t he order of priority of payment of Government dues and to establish an Insolvency and Bankruptcy Board of India, and for matters connected therewith or incidental thereto. ”

¶32In response to the comments received on this aspect from Parliamentary Debates on the Amendment Act in the Sixteenth Lok Sabha Session in 2018, the Report of the Insolvency Law Committ ee stated: “Section 53 of the Code places secured creditors who ha ve relinquished their security above unsecured financi al creditors. Thus, clear distinction has been drawn b etween unsecured and secured creditors who join the liquid ation proceedings for the purpose of the payment waterfall in case of liquidation. Unsecured creditors are ranked above secured creditors who have unpaid debts following enforceme nt of securities as it is presumed that such secured creditor s have recovered most of their dues by enforcement of their security outside the liquidation proceedings. Moreover, as s tated in the BLRC Report, protection of dues of unsecured cre ditors is intentional in order to encourage the market for corporate bonds and other unsecured debt. With respect to dues of workmen, they have been pla ced at the highest priority along with secured creditors w ho have relinquished their security, second only to IRP cos ts under the payment waterfall provided in section 53 of the Code.” 25

¶33The rationale for placing secured creditors who relinquish their security, higher in priority, is found upon a conjoint reading of Sections 52 and 53. Section 52 reads as follows: “Secured creditor in liquidation proceedings.

(1) A secured creditor in the liquidation proceedings ma y—

(a) relinquish its security interest to the liquidation estate and receive proceeds from the sale of assets by the liqu idator in the manner specified in section 53; or

(b) realise its security interest in the manner specifi ed in this section.

(2) Where the secured creditor realises security interest under clause (b) of sub-section (1), he shall inform the liquidator of such security interest and identify the asset subject to such security interest to be realised.

(3) Before any security interest is realised by the secured creditor under this section, the liquidator shall v erify such security interest and permit the secured creditor to realise only such security interest, the existence of which may be proved either—

(a) by the records of such security interest maintaine d by an information utility; or

(b) by such other means as may be specified by the Board.

(4) A secured creditor may enforce, realise, settle, compromise or deal with the secured assets in accordance with such l aw as applicable to the security interest being realised and to the secured creditor and apply the proceeds to recover the d ebts due to it.

(5) If in the course of realising a secured asset, any secured creditor faces resistance from the corporate debtor or any person connected therewith in taking possession of, selling or otherwise disposing of the security, the secured creditor 25 Report of the Insolvency Law Committee (2018) (pg. 87). may make an application to the Adjudicating Authori ty to facilitate the secured creditor to realise such security interest in accordance with law for the time being in force.

(6) The Adjudicating Authority, on the receipt of an application from a secured creditor under sub-section (5) may pass such order as may be necessary to permit a secured credi tor to realise security interest in accordance with law for the time being in force.

(7) Where the enforcement of the security interest unde r sub-section (4) yields an amount by way of proceeds which is in excess of the debts due to the secured creditor, the se cured creditor shall—

(a) account to the liquidator for such surplus; and

(b) tender to the liquidator any surplus funds receive d from the enforcement of such secured assets.

(8) The amount of insolvency resolution process cos ts, due from secured creditors who realise their security int erests in the manner provided in this section, shall be deducte d from the proceeds of any realisation by such secured cre ditors, and they shall transfer such amounts to the liquidator to be included in the liquidation estate.

(9) Where the proceeds of the realisation of the secured a ssets are not adequate to repay debts owed to the secured creditor, the unpaid debts of such secured creditor shall be paid by the liquidator in the manner specified in clause (e ) of sub-section (1) of section 53.”

¶34Section 52 gives an option to secured creditors to e ither relinquish their security interest, in the liquidation process (the procedure for which is prescribed in Regulations 21 and 21A of the L iquidation Regulations26), or proceed to enforce it. In case of the latter option, the 26 The said provisions of the Liquidation Regulations read as follows: “21. Proving security interest. The existence of a security interest may be proved by a secured creditor on the basis of-

(a) the records available in an information utility, if any;

(b) certificate of registration of charge issued by the Registrar of Companies; or

(c) proof of registration of charge with the Centra l Registry of Securitisation Asset Reconstruction and Security Interest of India. secured creditor has to first indicate its option, within the time prescribed (30 days, in Form C or D of Schedule II to the Liquidation Regulations). The liquidator may then, per Section 52 (3), permit the secured creditor to realize such dues as are proved to exist, as security debts . Upon clearance by the liquidator, the secured creditor may proceed to enforce its claim, under Section 52 (4). If there is resistance during the process, the secured creditor may approach the NCLT [Section 52 (5) and (6)]. Upon enforcement, any excess amount realized should be tendere d to the liquidator [Section 52 (7)].

¶35It is thus, apparent, that a secured creditor has to take a calculated decision, at the outset of the liquidation process, whether or not to relinquish its secured interest. In case it does so, its dues rank high in the waterfall mechanism. In case it chooses not to relinquish its security interest, and instead proceeds to enforce it without success or is unable to realize all its dues in the process of enforcem ent, it has to then perforce stand lower in priority, and await distribution of assets upon realization of the liquidation estate, by the liquidator, vis-à-vis the balance of its dues.

¶36The procedure envisioned, thus, takes a nuanced approach for the recovery of a secured creditor’s dues. In case they opt to relinquish the security, their priority is ranked high; in case, they seek to enforce such security, subject to intimation and verification by the liquidator, they can proceed to do so. In the event of short fall, they rank lower in priority. This appears to be the reason, as is clear from the explanation provided in response to comments as a result of Parliamentary debates in 2018, that secured creditors opting not to relinquish their security interest are “presumed that such secured creditors have recovered most of t heir dues by enforcement of their security outside the l iquidation proceedings”.27 There is sound logic in this, because those opting to 21A. Presumption of security interest. (1) A secured creditor shall inform the liquidator of its decision to relinquish its security interest to the liquidation estate or realise its security interest, as the case may be, in Form C or Form D of Schedule II: Provided that, where a secured creditor does not intimate its decision within thirty days from the liquidation commencement date, the assets covered under the security interest shall be presumed to be part of the liquidation estate.

(2) Where a secured creditor proceeds to realise it s security interest, it shall pay as much towards the amount payable under clause (a) and sub-clause (i) of clause (b) of sub-section (1) of section 53, as it would have sha red in case it had relinquished the security interest.” 27Supra note 25. ‘stand out’ and enforce security interest, are permitted to do s o; in the event of excess recovery, they have to intimate and hand ov er such excess for distribution in liquidation proceeding; in case they are unable to recover their dues, for such of the dues as are outstan ding, such secured creditors are ranked low.

¶37The recent judgment of this court, in Moser Baer Karamchari Union thr. President Mahesh Chand Sharma v. Union of India & Ors28 had dealt with the waterfall provisions of the IBC at length, albeit in the context of priority of claims of workmen’s dues. This court observed as follows: “66. …Sub-section (1) to Section 52 of the Code gives t wo options to a secured creditor. First, the secured creditor in a liquidation proceeding may relinquish its security intere st and receive the proceeds from the sale of assets by the liqu idator in the manner specified in Section 53 of the Code. The secon d option is to realise the security interest, but in the manner specified in Section 52 of the Code. Sub-section (2) to Section 52 of the Code states that where the secured creditor realis es the security interest, he shall inform the liquidato r of such security interest and identify the asset subject to such sec urity interest to be realised. The liquidator is to verify the se curity interest and shall permit the secured creditor to realise s uch security interest, which is proved either by records of such security interest maintained by an information utility, or by such other means as may be specified by the Board. Sub-section (4) to Section 52 of the Code states that the se cured creditor may enforce, realise, settle, compromise or deal with the secured asset in accordance with such law as applicable to the security interest being realised and to the secured creditor. The secured creditor is to accordingly ap ply the proceeds to recover the debts due to him. We need not refer to Sub-section (5) to Section 52 of the Code as it relates to the action which the secured creditor may take if he fa ces resistance from the corporate debtor or any other p erson connected therewith in taking possession of, sellin g or otherwise disposing off the security. Sub-section (6) to Sec tion 28Moser Baer Karamchari Union thr. President Mahesh C hand Sharma v. Union of India & Ors.,2023 SCC OnLine SC 547. 52 of the Code applies when an adjudicating authority is in receipt of an application Under Sub-section (5) to Section 52 of the Code. Sub-section (7) to Section 52 of the C ode, however, is important as it states that where on enforce ment of the security interest, an amount by way of procee ds is in excess of the debts due to the secured creditor, the se cured creditor shall account for and pay the excess/surplus amount to the liquidator from enforcement of such secured assets. The amount of insolvency resolution process costs, du e from secured creditors who realise their security intere sts in the manner provided in the section, are to be deducted from t he proceeds of any realisation by such secured credito rs. They are to be transferred and included in the liquidation es tate. Sub-section (9) to Section 52 of the Code states that where proceeds for realisation of the secured assets are not adequat e to repay the debts owed to the secured creditor, th e unpaid debts of such secured creditor shall be paid by the liquidat or in the manner specified in Clause (e) to Sub-sectio n (1) to Section 53 of the Code.

¶67To protect the interest of the workmen where the secur ed creditor does not relinquish its security interest to fall U nder Section 53 of the Code, Regulation 21A of the Insol vency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016 has been enacted, and it requires that th e secured creditor, who opts to realise its security in terest as per Section 52 of the Code, has to pay as much towards th e amount payable under the Clause (a) and Sub-clause ( i) to Clause (b) of Sub-section (1) to Section 53 of the Code to th e liquidator within the time and the manner stipulated therein . The workmen’s dues, even when the secured creditor opts to proceed Under Section 52 of the Code, are therefore protected in terms of Sub-clause (b) of Sub-section (1) to Section 53 of the Code. *******

¶69We now turn our attention to Section 53 of the Code which begins with a non-obstante Clause and states that notwithstanding anything to the contrary contained in any law enacted by the Parliament or any State Legislat ure for the time being in force, the proceeds from the sale of liquidation assets shall be distributed in the order of priority , which is stipulated, and within such period and such manner as may be specified. The consequence of Sub-section (1 ) to Section 53 of the Code is that it will override the rights of parties, including the secured creditor, when the said provision applies. Section 53 of the Code is the complete and comprehensive code which ensures collection of asse ts and then provides the manner in which the creditors are to be paid. Even the rights of the secured creditor fallin g Under Section 53 of the Code to enforce, realise, settle, compromi se or deal with the secured assets as applicable to the security interest are diluted and compromised.

¶70Clause (a) to Sub-section (1) to Section 53 deals with insolvency resolution process costs and the liquidation costs which are to be paid in full. No grievance or issue can be raised in respect of the said clause. Clause (b) to Sub-sect ion

(1) to Section 53 states that the debts due in the form of workmen’s dues for a period of twenty four months preceding the liquidation commencement date and the debts owed to the secured creditor in the event such secured creditor has relinquished security in the manner set out in Section 52 of the Code shall rank equally between and amongst the workmen and the secured creditors. The Explanation to Section 53 of the Code states that ‘workmen’s dues’ shall h ave the same meaning as assigned to it in Section 326 of th e Companies Act, 2013. In other words, Explanation to Section 326 of the Companies Act, 2013 has been incorporated and applies to the waterfall mechanism as prescribed in Clause

(b) to Sub-section (1) to Section 53 of the Code. W hat is significant here is that under Clause (b) to Sub-section (1) t o Section 53 of the Code, the workmen’s dues are for the period of twenty-four months preceding the liquidation commencement date. The liquidation commencement date, as defined in terms of Sub-section (17) to Section 5 of the Code, is much earlier in point of time and need not coincide with the date of winding up. This is in the interest of the wor kmen. Clause (i) of Explanation to Section 53 of the Code states that where the distribution of proceeds in respect of cl ass of recipients that rank equally, each of the debts would be pai d either in full or would be paid in equal proportion within the same class of recipients, if the proceeds are insuf ficient to meet the debts in full. Ex facie, the Clause is very j ust and fair. It is to be noted that the wages and unpaid dues owed to employees other than the workmen fall in Clause (c), w hich is below Clause (b) to Sub-section (1) to Section 5 3 of the Code. They are to be paid wages and unpaid dues only for a period of twelve months preceding the liquidation commencement date, and that too only if surplus funds are available after making payment in terms of Clause ( a) and

(b) of Sub-section (1) to Section 53 of the Code. Claus e (d) of Sub-section (1) to Section 53 of the Code relates to financia l debts owed to unsecured creditors. The amounts due to the Central Government and the State Government, etc., and the debts owed to a secured creditor for any amount that remains unpaid following the enforcement of security intere st, have been clubbed together in Clause (e) of Sub-section (1) to Section 53 of the Code, and have to be ranked equal ly between and among both of them. The remaining debts and dues fall in Clause (f) of Sub-section (1) to Section 53 of the Code. Preference shareholders fall under Clause (g) of S ub-section (1) to Section 53 of the Code, and equity shareholde rs or partners fall under Clause (h) of Sub-section (1) to Section 53 of the Code. Sub-section (2) to Section 53 of th e Code states that any contractual arrangements between reci pients Under Sub-section (1) with equal ranking, if disrupti ng the order of priority under the said Sub-section will b e disregarded by the liquidator.

¶71The waterfall mechanism is based on a structured mathematical formula, and the hierarchy is created in te rms of payment of debts in order of priority with sever al qualifications, striking down any one of the provis ions or rearranging the hierarchy in the waterfall mechanis m may lead to several trips and disrupt the working of the equilibri um as a whole and stasis, resulting in instability. Ever y change in the waterfall mechanism is bound to lead to casc ading effects on the balance of rights and interests of th e secured creditors, operational creditors and even the Central and Stat e Governments. Depending upon the facts, in some case s, the waterfall mechanism in the Code may be more beneficial than the hierarchy provided Under Section 326 of the Companie s Act, 2013 and vice-versa. Therefore, we hesitate and do not accept the arguments of the Petitioners.

¶72The Code is based on the organic evolution of law and is a product of an extensive consultative process to m eet the requirements of the Code governing liquidation. It introduced a comprehensive and time-bound framework to maximise the value of assets of all persons and balance the interest o f the stakeholders. The guiding principle for the Code in setting the priority of payments in liquidation was to brin g the practices in India in line with global practices. In the water fall mechanism, after the costs of the insolvency resolution proc ess and liquidation, secured creditors share the highest priority along with a defined period of dues of the workmen. The unpaid dues of the workmen are adequately and significantly protected in line with the objectives sought to be achieved by the Code and in terms of the waterfall mechanism prescribed by Section 53 of the Code. In either case of relinquishment or non-relinquishment of the security by the secured c reditor, the interests of workmen are protected under the Co de. In fact, the secured creditors are taking significant hair-c ut and workmen are being compensated on an equitable basis in a just and proper manner as per Section 53 of the Code. The Code balances the rights of the secured creditors, w ho are financial institutions in which the general public has inves ted money, and also ensures that the economic activity and revival of a viable company is not hindered because it has su ffered or fallen into a financial crisis. The Code focuses on bringin g additional gains to both the economy and the excheq uer through efficiency enhancement and consequent greater value capture. In economic matters, a wider latitude is given to the law-maker and the Court allows for experimentation in such legislations based on practical experiences and oth er problems seen by the law-makers. In a challenge to such legislation, the Court does not adopt a doctrinaire approach. Some sacrifices have to be always made for the greater good , and unless such sacrifices are prima facie apparent a nd ex facie harsh and unequitable as to classify as manif estly arbitrary, these would be interfered with by the court.”

¶38It is hence clear that the provisions of the IBC are ca refully thought out, and give options to secured creditors, and balance the ir interests with those of other creditors in a liquidation proceeding. C. RECOVERY MECHANISM UNDER THE 2003 ACT AND 2005 CODE

¶39By virtue of Section 56 of the 2003 Act, in the event of any person’s neglect “to pay any charge for electricity or any sum other than a charge for electricity” payable “in respect of supply, transmission or distribution or wheeling of electricity to hi m” (after a clear fifteen days’ notice in writing) ”and without prejudice to his rights to recover such charge or other sum by suit” , a licensee (including a distribution licensee such as PVVNL) is emp owered to disconnect electricity supply to such consumer or person.

¶40By virtue of Section 181(2)(x) of the 2003 Act, State Commissions are empowered to frame regulations. Section 50 empowers the State Commissions to frame the “Electricity Supply Code” to provide for recovery of electricity charges, intervals for bill ing of electricity charges, disconnection of supply of electricity for non-payment , etc. These provisions in the 2003 Act and the respective Codes form the legal framework for recovery of dues by various kinds of licensees under the 2003 Act. In the present case, the Uttar Pradesh State Commission had framed the 2005 Supply Code. Clause 4.3 (f) (iv) of the 2005 Code is relevant, which inter alia provides as follows: “The outstanding dues will be first charge on the as sets of the company, and the licensee shall ensure that this is ente red in an agreement with new applicant.”

¶41Clause 6.15 of the 2005 Code enacts that recovery of arrears shall be in accordance with the provisions of the U ttar Pradesh Government Electrical Undertakings (Dues Recovery) Act, 1958: “6.15 Recovery of Arrears

(a) The payments due to the Licensee shall be recove red as per provision of Section 56 of the Act, and arrears of land revenue as per the provisions of the U.P. Governmen t Electrical Undertaking (Dues Recovery) Act, 1958, a s amended from time to time.

(b) Notwithstanding anything contained in any other law for the time being in force, no sum due from any consumer sha ll be recoverable after the period of two years from t he date when such sum became first due unless such sum has been shown continuously as recoverable as arrear of charg es of electricity supplied, and the licensee shall not cut off the supply of the electricity. (Explanation: The date from which such charges becomes ‘first due’, needs to be correctly interpreted. If as a result of regular meter reading / inspection of installation of consum er, such charges / penalties levied as per this code or tariff sche dule, shall become first due after 15 days of receipt of such a bill by consumer, and such bill shall be provided to the consumer not later than two billing cycle for that category of consumer).”

¶42As previously stated above, the corporate debtor entered into an agreement with PVVNL for supply of electricity on 11.02.2010 which provided that outstanding electricity dues would constitute a ‘charge’ on its assets.29 This was in accordance with Clause 4.3(f)(iv) of the 2005 Code. Clause 8 of the agreement30 also mentioned that the parties would be governed by the 2003 Act.

¶43A recent ruling of this court in K.C. Ninan v. Kerala State Electricity Board31examined the circumstances in which such a ‘charge’ could be constituted in law, and held as follows: “107. Consequently, in general law, a transferee of the premises cannot be made liable for the outstanding dues of the previ ous owner since electricity arrears do not automatically becom e a charge over the premises. Such an action is permissible only where the statutory conditions of supply authorise the re covery of outstanding electricity dues from a subsequent pur chaser claiming fresh connection of electricity, or if there is an express provision of law providing for creation of a statutory charge upon the transferee.” 29 Clause 5 of the agreement, extracted at paragraph 2. 30 Clause 8 of the agreement read as follows: “This agreement shall be governed by the Electricity Act, 2003 with all its amendments, various other laws of India for the time being in force, but not limited to various regulati ons of UPERC, as applicable to the State of U.P. and shall be subject to the jurisdiction of the Court subordinate to High Court of Judicature of Allahabad.” 31K.C. Ninan v. Kerala State Electricity Board, 2023 SCC Online SC 603. This court held that the creation of a charge need not necessarily be based on an express provision of the 2003 Act or plenary legislation, but could be created by properly framed regulations authoriz ed under the parent statute. In these circumstances, the argument o f PVVNL that by virtue of Clause 4.3(f)(iv) of the Supply Code, read w ith the stipulations in the agreement between the parties, a charge was created on the assets of the corporate debtor, is merited. A careful reading of the impugned order of the NCLT also reveals that this position was accepted. This is evident from the order of the NCLAT which clarified that PVVNL also came under the definition of ‘secured operational creditor’ a s per law. This finding was not disturbed, but rather affirmed by the impugned order. In these circumstances, the conclusion that PVVNL is a secured creditor cannot be disputed.

¶44The counsel for the liquidator had submitted that dues owed to PVVNL were technically owed to the “government”, and thus occupied a lower position in the order of priority of clearance. The exp ression “government dues” is not defined in the IBC - it finds place only in the preamble. However, what constitutes such dues is spelt out in the ‘waterfall mechanism’ under Section 53(1)(e), which inter alia states that, “Any amount due to the Central Government and the State Government including the amount to be received on account of the Consolidated Fund of India and the Consolidated Fund of the State ” ranks lower in priority to the class of creditors described in Clauses (a) to (d) of Section 53(1). Thus, there exists a separate enum eration or specification of the Central Government and State Go vernment dues, as a class apart from other creditors, including cred itors who may have secured interest (in respect of which amounts m ay be payable to them). The repeated reference of lowering of priority of debt s to the government, on account of statutory tax, or other dues p ayable to the Central Government or State Government, or amounts payable into the Consolidated Fund on account of either governm ent, in the various reports which preceded the enactment of the IBC , as well as its Preamble, means that these dues are distinct an d have to be treated as separate from those owed to secured creditors. T he Central Government and State Government are defined by the General Clauses Act, 1897. The former is defined by Section 3(8),32 and latter by Section 32(8) “Central Government” shall,—

(a) in relation to anything done before the commencement of the Constitution, mean the Governor General or the Governor General in Council, as the case may be; and shall include,— 3 (60).33 The distinction between the governments has been recognized and maintained by previous decisions of this court. For inst ance, in Shrikant v. Vasantrao & Ors., 34 this court underlined that while an entity or corporation may be “State” under Article 12 of the Constitution of India, nevertheless, its distinct entity, for other purposes , is always maintained, and fact-dependent: “Both may answer the definition of ‘State’ under Art icle 12 for the limited purpose of Part-III of the Constituti on. Further, the very inclusive definition of ‘State’ under Arti cle 12 by referring to Government of India, the Government of each of

(i) in relation to functions entrusted under sub-se ction (1) of section 124 of the Government of India Act, 1935, to the Government of a Province, the Provincial Government acting within the scope of the authority given to it under that subsection; and

(ii) in relation to the administration of a Chief C ommissioner’s Province, the Chief Commissioner acting within the scope of the authority given to him under sub-section

(3) of section 94 of the said Act; and

(b) in relation to anything done or to be done after the commencement of the Constitution, mean the President; and shall include,—

(i) in relation to functions entrusted under clause (1) of article 258 of the Constitution, to the Government of a State, the State Government acting within the scope of the authority given to it under that clause; 1***

(ii) in relation to the administration of a Part C State 2[before the commencement of the Constitution (Seventh Amendment) Act, 1956], the Chief Commissioner or the Lieutenant Governor or the Government of a neighbouring State or other authority acting within the scope of the authority given to him or it under article 239 or article 243 of the Constitution, as the case may be; and

(iii) in relation to the administration of a Union territory, the administrator thereof acting within the scope of the authority given to him under article 239 of the Constitution”. 33(60) “State Government”,—

(a) as respects anything done before the commencement of the Constitution, shall mean, in a Part A State, the Provincial Government of the corresponding Province, in a Part B State, the authority or person authorised at the relevant date to exercise executive government in the corresponding Acceding State, and in a Part C State, the Central Government; 1***

(b) as respects anything done 2[after the commencement of the Constitution and before the commencement of the Constitution (Seventh Amendment) Act, 1956] , shall mean, in a Part A State, the Governor, in a Part B State, the Rajpramukh, and in a Part C State, the Central Government;

(c) as respects anything done or to be done after the commencement of the Constitution (Seventh Amendment) Act, 1956, shall mean, in a State, the Governor, and in a Union territory, the Central Government; and shall, in relation to functions entrusted under article 258A of the Constitution to the Government of India, include the Central Government acting within the scope of the authority given to it under that article” 34Shrikant v. Vasantrao &Ors ., 2006 (1) SCR 496 the States and the local and other authorities, makes it clear that a ‘State Government’ and a local or other autho rities, are different and that they fall under a common def inition only for the purpose of Part-III of the Constitution. This Cou rt has consistently refused to apply the enlarged defi nition of ‘State’ given in Part-III (and Part-IV) of the Constitution, for interpreting the words ‘State’ or ‘State Government’ occurring in other parts of the Constitution. While the term “State” may include a State Government as also statutory or oth er authorities for the purposes of part-III (or Part-I V) of the Constitution, the term “State Government” in its ordinary sense does not encompass in its fold either a local or st atutory authority”.

¶45The judgment of this court, in Municipal Commissioner of Dum Dum Municipality & Ors. v. Indian Tourism Devel opment Corporation & Ors., 35 noticed that, “In the case of major public utilities, statutory corporations were created unde r different enactments”, and went on to enumerate some examples such as Road Transport Corporations, Electricity Boards under the Electricity Supply Act, 1948 and so on. The court observed that: “With a view to enable these statutory corporations and companies to carry on the activity which was hitherto carried on by the governments, the relevant properties, ass ets and liabilities were transferred to such new corporatio ns. They were supposed to operate on business lines, pay tax es and justify their creation and constitution. These corp orations, whether created under the statute or registered und er the Companies Act are distinct juristic entities owning the ir own properties, having their own fund, capable of borrowing an d lending monies and entering into contracts like any other corporation. In many cases, the entire share capital of th ese corporations is owned by the Government whether Cen tral or State. In some cases, the major share holding is of the Government with some private share holding as well. In ca se of some statutory corporations, the enactment creati ng them did not provide for any share capital, though it was made a 35 Municipal Commissioner of Dum Dum Municipality & Or s. v. Indian Tourism Development Corporation & Ors., 1995 (5) SCC 251. body corporate with all the necessary and incidental powers that go with such concept. The International Airpor ts Authority is one such corporation created under the Act with no share capital but which has its own properties, its own fund, accounts, employees and capable of lending an d borrowing and entering into contracts.”

¶46The specific mention of other class of creditors whose dues are statutory, such as dues payable to workmen or employe es, “the provident fund, the pension fund, the gratuity fund” under Section 36(4), which excludes these enumerated amounts from the liquidation, especially clarifies that not all dues owed under statute are treated as ‘government’ dues. In other words, dues payable to statutory corporations which do not fall within the description “amounts due to the central or state government” such as for instance amounts payable to corporations created by statutes which have distinct juristic entity but whose dues do not constitute government dues payable or those payab le into the respective Consolidated Funds stand on a different footing . Such corporations may be operational creditors or financial creditors or secured creditors depending on the nature of the transactions entered i nto by them with the corporate debtor. On the other hand, dues paya ble or requiring to be credited to the Treasury, such as tax, tariffs, etc. which broadly fall within the ambit of Article 265 of the Constitut ion are ‘government dues’ and therefore covered by Section 53(1)(f) of t he IBC.

¶47PVVNL undoubtedly has government participation. However, that does not render it a government or a part of the ‘State Government’. Its functions can be replicated by other entities, both private and public. The supply of electricity, the generation, transmission, and distribution of electricity has been liberalized in terms of the 2003 Act barring certain segments. Private entities are entitled to hold licenses. In this context, it has to be emphasized that private participation as distribution licensees is fairly widespread. For these reasons, it is held that in the present case, dues or amounts payable to PVVNL do not fall within the description of Section 53(1)(f) of the IBC.

¶48PVVNL had relied upon the decision Rainbow Papers (supra). In that case, the issue involved was interpretation of Section 48 of the Gujarat Value Added Tax Act, 2003 which enacted that any amou nt payable towards tax or penalty by any person would constitute a ‘ first charge’ on the property of such dealer or person. The corporate debtor had defaulted in payment of its tax dues and recovery proceedings had been initiated. In the meanwhile, insolvency proceedings had commenced. During the resolution process, the State tax authorities claimed that the dues payable had to be accrued previously and relied upon Section 48, in addition to Section 53 of the IBC. The State contended that the non-obstante clause in the state enactment and the non-obstante clause in the IBC operated at different fields, and the State had to be treated as a ‘secured creditor’ by virtue of Section 48 of the state ac t. This was rejected by the NCLT and the NCLAT. However, this court took note of Sections 30 and 31 of the IBC and certain other provisions and held that NCLT had erred in its observations. It was held that: “56. Section 48 of the GVAT Act is not contrary to o r inconsistent with Section 53 or any other provision s of the IBC. Under Section 53(1)(b)(ii), the debts owed to a secured creditor, which would include the State under the GVA T Act, are to rank equally with other specified debts including d ebts on account of workman’s dues for a period of 24 mon ths preceding the liquidation commencement date.

¶57As observed above, the State is a secured creditor u nder the GVAT Act. Section 3(30) of the IBC defines secured creditor to mean a creditor in favour of whom security inter est is credited. Such security interest could be created by operation of law. The definition of secured creditor in the IBC does not exclude any Government or Governmental Authority.

¶58We are constrained to hold that the Appellate Author ity (NCLAT) and the Adjudicating Authority erred in law in rejecting the application/appeal of the appellant. As obse rved above, delay in filing a claim cannot be the sole groun d for rejecting the claim.”

¶49Rainbow Papers (supra) did not notice the ‘waterfall mechanism’ under Section 53 – the provision had not been adverted to or extracted in the judgment. Furthermore, Rainbow Papers (supra)was in the context of are solution process and not during liquidation. Section 53, as held earlier, enacts the waterfall mechanism providi ng for the hierarchy or priority of claims of various classes of creditors. The careful design of Section 53 locates amounts payable to secured creditors and workmen at the second place, after the costs and exp enses of the liquidator payable during the liquidation proceedings. However, the dues payable to the government are placed much below those of secured creditors and even unsecured and operational creditors. This design was either not brought to the notice of the court in Rainbow Papers(supra)or was missed altogether. In any event, the judgment has not taken note of the provisions of the IBC which treat the dues payable to secured creditors at a higher footing than dues payable to Cent ral or State Government.

¶50The Gujarat Value Added Tax Act, 2003 no doubt creates a charge in respect of amounts due and payable or arrears. I t would be possible to hold [in the absence of a specific enumeration of government dues as in the present case, in Section 53(1)(e)] that t he State is to be treated as a ‘secured creditor’. However, the separate and distinct treatment of amounts payable to secured creditor on the one hand, and dues payable to the government on the other clearly signifies Parliament’s intention to treat the latter differently - and in the present case, having lower priority. As noticed earlier, this intention is al so evident from a reading of the preamble to the Act itself.

¶51According to the principles of statutory interpretation, when an enactment uses two different expressions, they cannot be construed as having the same meaning. It was held in Member, Board of Revenue v. Anthony Paul Benthall 36 that: “When two words of different import are used in a statute, i n two consecutive provisions, it would be difficult to ma intain that they are used in the same sense…” This idea is reflected in a subsequent judgment in Brihan Mumbai Mahanagarpalika & Anr. v. Willington Sports Club & Or s.37

¶52The views expressed by the present judgment finds support in the decision reported as Sundaresh Bhatt, Liquidator of ABG Shipyard v. Central Board of Indirect Taxes and Customs38. In that case, Section 142A of the Customs Act 1962 was in issue – authorities had submitted that dues payable to it were to be treated as ‘first charge’ on the property 36Member, Board of Revenue v. Anthony Paul Benthall(1955) 2 SCR 842. 37Brihan Mumbai Mahanagarpalika & Anr. v. Willington Sports Club & Ors., (2013)

(16) SCR 216. 38Sundaresh Bhatt, Liquidator of ABG Shipyard v. Central Board of Indirect Taxes and Customs, 2022 SCC Online SC 1101. of the assessee concerned. In the resolution process, it was argued that the Customs Act, 1962 acquired primacy and had to be given effect to. This court, after noticing the overriding effect of Section 238 of the IBC, held as follows: “55. For the sake of clarity following questions, m ay be answered as under:

(a) Whether the provisions of the IBC would prevail over the Customs Act, and if so, to what extent? The IBC would prevail over the Customs Act, to the extent that once moratorium is imposed in terms of Sections 14 or 33(5) of the IBC as the case may be, the respondent authori ty only has a limited jurisdiction to assess/determine the quantum of customs duty and other levies. The respondent aut hority does not have the power to initiate recovery of dues by me ans of sale/confiscation, as provided under the Customs A ct.

(b) Whether the respondent could claim title over the g oods and issue notice to sell the goods in terms of the Customs Act when the liquidation process has been initiated? Answered in negative.

¶56On the basis of the above discussions, following are our conclusions:

(i) Once moratorium is imposed in terms of Sections 14 or 33(5) of the IBC as the case may be, the respondent authori ty only has a limited jurisdiction to assess/determine the quantum of customs duty and other levies. The respondent aut hority does not have the power to initiate recovery of dues by me ans of sale/confiscation, as provided under the Customs A ct.

(ii) After such assessment, the respondent authorit y has to submit its claims (concerning customs dues/operational de bt) in terms of the procedure laid down, in strict complia nce of the time periods prescribed under the IBC, before t he adjudicating authority.

(iii) In any case, the IRP/RP/liquidator can immediately secure goods from the respondent authority to be dealt wit h appropriately, in terms of the IBC.” Similarly, in Duncans Industries Ltd. v. AJ Agrochem39, Section 16G of the Tea Act, 1953 which required prior consent of the Central Government (for initiation of winding up proceedings) was held to be overridden by the IBC. In a similar manner, it is held that Section 238 of the IBC overrides the provisions of the Electricity Act, 2003 despite the latter containing two specific provisions which open with non-obstante clauses (i.e., Section 173 and 174). The position of law with respect to primacy of the IBC, is identical with the position discussed in Sundaresh Bhatt and Duncan Industries (supra) [refer also: Innoventive Industries (supra), CIT v. Monnet Ispat & Energy Ltd.40, Ghanashyam Mishra & Sons (P) Ltd. v. Edelweiss Asset Reconstruction Co. Lt d.41, and Jagmohan Bajaj v. Shivam Fragrances Private Limited 42].

¶53In view of the above discussion, it is held that the reliance on Rainbow Papers (supra) is of no avail to the appellant. In this court’s view, that judgment has to be confined to the facts of that case alone. D. EFFECT OF SECTION 77 OF THE COMPANIESACT

¶54Lastly, the liquidator had urged that without registration of charge, the same was unenforceable under liquidation proc eedings. Section 77 of the Companies Act, 2013reads as follows: “77. Duty to register charges, etc. —(1) It shall be the duty of every company creating a charge within or outside India, on its property or assets or any of its undertakings, whether tangible or otherwise, and situated in or outside I ndia, to register the particulars of the charge signed by the company and the charge-holder together with the instruments, if any, creating such charge in such form, on payment of suc h fees and in such manner as may be prescribed, with the Registrar within thirty days of its creation: Provided that the Registr ar may, on an application by the company, allow such registration to be made within a period of three hundred days of such creation on payment of such additional fees as may be prescribed: Provided further that if registration is not made within a period of three hundred days of such creatio n, the company shall seek extension of time in accordance with 39Duncans Industries Ltd. v. AJ Agrochem, (2019) 9 SCC 725. 40 (2018) 18 SCC 786 41 [2021] 13 SCR 737 42 2018 SCC OnLine NCLAT 413 section 87: Provided also that any subsequent registration of a charge shall not prejudice any right acquired in respect o f any property before the charge is actually registered.

(2) Where a charge is registered with the Registrar under s ub-section (1), he shall issue a certificate of registration o f such charge in such form and in such manner as may be prescribe d to the company and, as the case may be, to the pers on in whose favour the charge is created.

(3) Notwithstanding anything contained in any other law for the time being in force, no charge created by a company shall be taken into account by the liquidator or any other creditor unless it is duly registered under sub-section (1) and a certificate of registration of such charge is given by the Registrar under sub-section (2).

(4) Nothing in sub-section (3) shall prejudice any contract or obligation for the repayment of the money secured b y a charge.”

¶55Section 78 enacts, that when a company whose property is subject to charge, fails to register it, the charge holder ( or the person entitled to the charge over the company’s assets) can seek its registration. Section 3 (31) of the IBC defines “security interest” in the widest terms. In this court’s opinion, the liquidator cannot urge this aspect at this stage, because of the concurrent findings of the NCLT and the NCLAT t hat PVVNL is a secured creditor.

¶56The record further shows that after the NCLT pass ed its order, the appellant preferred its claim on 10.04.2018. Based on that application, the liquidator had filed an application before the NCLT for modification of its order dated 21.08.2018, and contended that PVVNL also came under the definition of ‘secured operatio nal creditor’ in realization of its dues in the liquidation proceedings as per law. The application sought amendment of the list of stakeholders. The application was allowed. In view of these factual developments, this Court does not consider it appropriate to rule on the submissions of the liquidator vis-a-vis the fact of non-registration of charges under Section 77 of the Companies Act, 2013. V. CONCLUSION

¶57For the above reasons, it is held that the appeal de serves to fail. At the same time, the liquidator is directed to dec ide the claim exercised by PVVNL in the manner required by law. It shall complete the process within 10 weeks from the date of pronouncement o f this decision, after providing such opportunity to the appellant, as is necessary under law.

¶58The appeal is dismissed, subject to the above direction, without order on costs. Divya Pandey Appeal dismissed. (Assisted by : Shevali Monga, LCRA)