2018 (9) TMI 1226 - Tri - Insolvency and Bankruptcy

Overriding effect of provision of Insolvency and Bankruptcy Code, 2016 - attachment orders - Held that - Proceeding under the sick industrial Companies (special provisions) repeal act 2003 was not, having overriding effect over other laws. But section 238 of the Insolvency And Bankruptcy Code 2016 specifically provides that the provisions of this Court shall effect, notwithstanding anything inconsistent in addition to that contained in any other law for the time being in force or any instrument affecting by any such law. Since the provision of Insolvency and Bankruptcy Code, 2016 has an overriding effect, and there exists a direct inconsistency between the provisions of liquidation as provided in Chapter 3rd of the I.B. Code, 2016 with the provision for attachment of assets for recovery of dues for supply of electrical energy under the U.P. Electricity Supply Code, 2005/ U.P. Government Electrical Undertaking (dues recovery) Act, 1956, therefore provisions of IB code shall prevail. The attached property is also a part of liquidation estate, under the purview of liquidation estate, which is available for benefit of all creditors as per provision of Section 36 (2) of the Code. If the attachment continues, the property would become available for the benefit of the respondents only, who are also secured operational creditors and ranks equally with other secured financial creditors under the Provisions of Section 53 of the Insolvency and Bankruptcy Code, 2016.Therefore, the property of the creditor which have been attached by the District Magistrate, Muzaffarnagar and Tehsildar, Muzaffarnagar is a part of liquidation estate. Since under liquidation process, it has to be sold and after that realised value will be distributed regarding provision of Section 53 of I.B. Code, 2016. It is also on record that by order of District Magistrate a notice board is on display at that attached property, which show that sale of the attached property is prohibited by order of the District Magistrate. In such situation, liquidator can never find any buyer to purchase the property. Therefore, we allow this company application and pass an order to the District Magistrate and Tehsildar Muzaffarnagar for immediate release of the attached property in favour of liquidator, so that he may sell the property, and after realisation of the value of the property it may be distributed in accordance with the relevant provisions of the I&B. Code, 2016. It is also to make clear that P.V.V.N.L also comes under the definition of secured operational creditor, who can realize their dues in the liquidation proceedings as per law after submitting their claim before the liquidator.

Issues Involved:
1. Release of attached property of the corporate debtor.
2. Submission of claims by Paschimanchal Vidyut Vitran Nigam Limited (P.V.V.N.L).
3. Authority of the liquidator to sell the property.
4. Distribution of liquidation proceeds.
5. Overriding effect of the Insolvency and Bankruptcy Code, 2016 (IBC) over other laws.

Issue-wise Detailed Analysis:

1. Release of Attached Property of the Corporate Debtor:
The liquidator filed an application to release the attached property of Raman Ispat Private Limited, arguing that the properties owned by the corporate debtor were attached by the District Collector and Tehsildar, Muzaffarnagar due to outstanding dues for the supply of electrical energy by P.V.V.N.L. The Tribunal held that the attached property is part of the liquidation estate under Section 36(1) of the IBC, 2016, and should be released for the benefit of all creditors. The attachment by the District Collector and Tehsildar was ordered to be immediately released to enable the liquidator to sell the property and distribute the proceeds as per the IBC.

2. Submission of Claims by Paschimanchal Vidyut Vitran Nigam Limited (P.V.V.N.L):
The liquidator requested directions for P.V.V.N.L to submit their claims in Form C as prescribed under the Insolvency and Bankruptcy (Liquidation Process) Regulations, 2016. The Tribunal noted that P.V.V.N.L is an operational creditor within the definition provided under Sections 5(20) and 5(21) of the IBC, 2016. The Tribunal directed P.V.V.N.L to submit their claims to the liquidator, who will then classify and prioritize these claims under Section 53 of the IBC.

3. Authority of the Liquidator to Sell the Property:
The liquidator has the authority to sell the movable, immovable, and actionable claims of the corporate debtor under Section 35(1)(f) of the IBC, 2016. The Tribunal emphasized that the liquidator must form the liquidation estate, including encumbered assets, and has the power to sell these assets by public auction or private contract. The Tribunal also noted that the display of a notice by the District Magistrate prohibiting the sale of the attached property would deter potential buyers, thereby affecting the liquidation process.

4. Distribution of Liquidation Proceeds:
The proceeds from the sale of the liquidation assets must be distributed in the order of priority prescribed under Section 53 of the IBC, 2016. The Tribunal clarified that P.V.V.N.L, as a secured operational creditor, would be entitled to a pro-rata distribution of the proceeds along with other secured creditors, such as Union Bank of India, Muzaffarnagar. The Tribunal also highlighted that the liquidation value of the assets is lower than the claim amounts of the secured creditors, necessitating an equitable distribution of proceeds.

5. Overriding Effect of the Insolvency and Bankruptcy Code, 2016 (IBC) Over Other Laws:
The Tribunal reiterated that the IBC, 2016 has an overriding effect over other laws, as per Section 238 of the IBC. The Tribunal found a direct inconsistency between the provisions for liquidation under the IBC and the attachment of assets for recovery of dues under the UP Electricity Supply Code, 2005. The Tribunal cited the Supreme Court's ruling in Solidare India Limited v. Fair Growth Financial Services Private Limited & Ors., which held that when two statutes contain non-obstante clauses, the later statute prevails. Consequently, the IBC, 2016 overrides the provisions of the Electricity Act, 2003, and the UP Electricity Supply Code, 2005.

Conclusion:
The Tribunal allowed the application, directing the immediate release of the attached property in favor of the liquidator, enabling the sale of the property, and ensuring the distribution of proceeds as per the IBC, 2016. The Tribunal also affirmed that P.V.V.N.L is a secured operational creditor and must submit their claims to the liquidator for inclusion in the liquidation process.

← Previous Next →