Gujarat High Court
Krbl Limited vs State Of Gujarat on 22 September, 2023
Bench: Biren Vaishnav
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IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/SPECIAL CIVIL APPLICATION NO. 19804 of 2022
FOR APPROVAL AND SIGNATURE:
HONOURABLE MR. JUSTICE BIREN VAISHNAV sd/-
and
HONOURABLE MR. JUSTICE DEVAN M. DESAI sd/-
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1 Whether Reporters of Local Papers may be allowed YES
to see the judgment ?
2 To be referred to the Reporter or not ? YES
3 Whether their Lordships wish to see the fair copy NO
of the judgment ?
4 Whether this case involves a substantial question NO
of law as to the interpretation of the Constitution
of India or any order made thereunder ?
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KRBL LIMITED
Versus
STATE OF GUJARAT
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Appearance:
MR DEVAN PARIKH, SENIOR COUNSEL WITH MR SP MAJMUDAR(3456)
AND MR ARPIT R SINGHVI(9524) for the Petitioner(s) No. 1
MR PRANAV TRIVEDI, AGP for the Respondent(s) No. 1
NOTICE SERVED BY DS for the Respondent(s) No. 1,3,4
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CORAM:HONOURABLE MR. JUSTICE BIREN VAISHNAV
and
HONOURABLE MR. JUSTICE DEVAN M. DESAI
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Date : 22/09/2023
CAV JUDGMENT
(PER : HONOURABLE MR. JUSTICE BIREN VAISHNAV)
1. By way of this petition under Article 226 of the
Constitution of India, the petitioner has prayed
for the following reliefs:
"28(A) YOUR LORDSHIPS may be pleased to
issue a writ of mandamus writ in the nature of
mandamus or any other appropriate writ, order
or directions directing the Respondent No. 2 to
certify the Entry No. 4454 in revenue record
pursuant to the sale of the land in question by
way of registered sale deed dated 17.12.2021
in favour of the Petitioner;
B) YOUR LORDSHIPS may be pleased to issue
a writ of mandamus or a writ in the nature of
mandamus or any other appropriate writ, order
or directions setting aside order dated
05.01.2022 passed by Respondent No. 3 and
further set aside the consequential Entry No.
6295 mutated in the revenue record;
BB) YOUR LORDSHIPS may be pleased to
issue a writ of mandamus or a writ in the
nature of mandamus or any other appropriate
writ, order or directions quashing and setting
aside endorsement of Respondent No. 4 -
Circle Officer rejecting the Entry 4454 as the
same was without hearing the Petitioner and is
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completely illegal;
2. Facts in brief are as under:
2.1 The petitioner is a public limited company
incorporated under the Companies Act, 1956. It
is engaged in the business of rice processing and
exporting and is the world's largest rice miller.
2.2 The petitioner is an auction purchaser of
land being non agricultural land situated at
Survey No.113, Village:Varsamedi, Taluka:Anjar,
District:Kutch, admeasuring 44,212 square
meters. The land in question was purchased by
an auction by way of a registered sale deed dated
17.12.2021 from the liquidator of M/s. Gran
Electronics Private Limited.
2.3 M/s.Gran Electronics Private Limited has
purchased the land from one Neha Ashwin Mehta
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vide sale deed dated 30.08.2005. The company
had obtained permission for bona-fide industrial
use as provided under the Bombay Tenancy and
Agricultural Lands Act. Since, M/s.Gran
Electronics Private Limited was desirous of
availing financial facilities, it approached the
Indian Overseas Bank for availing financial
facilities. In order to secure financial assistance
from Indian Overseas Bank and Saraswat Bank
an equitable mortgage deed dated 02.06.2006
was created. The loans were repaid and the
mortgage deed was released. Desirous of
obtaining additional financial facilities, M/s.Gran
Electronics Private Limited approached IFCI
Limited and secured the said financial facility by
executing an indenture of mortgage dated
03.12.2015. Since the company had to close its
operations, an application under Section 7 of the
Insolvency and Bankruptcy Code, 2016, was filed
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by one Universal Digital Connect Limited against
M/s.Gran Electronics Private Limited. By an
order dated 17.01.2020, the National Company
Law Tribunal, Mumbai, admitted the petition and
ordered moratorium under Section 14 of the
Code and appointed an Interim Resolution
Professional.
2.4 The Interim Resolution Professional issued
a public advertisement dated 25.01.2020 inviting
claims as per the provisions of the Code. Interim
Resolution Professional was thereafter confirmed
as the Resolution Professional. The list of claims
with respect to the operational creditors was put
forth in the several claims. It is the case of the
petitioner that the claim of the sales tax
department in the sum of Rs.77,08,69,644/- was
rejected. In a meeting held on 30.06.2020, it was
decided to liquidate M/s.Gran Electronics Private
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Limited. An application was accordingly filed
and vide order dated 12.02.2021, the National
Company Law Tribunal ordered liquidating
M/s.Gran Electronics Private Limited and further
appointing a liquidator.
2.5 On 19.02.2021, a public announcement was
issued by the liquidator calling for the
stakeholders to submit their claims on or before
20.03.2021. By a letter dated 23.02.2021 the
liquidator had also addressed a letter to the
office of the Assistant Commissioner of State Tax
asking him to submit its claim. No claim was
received from the State Goods and Services
Department. Thereafter, an auction sale notice
was issued on 14.09.2021 for sale of assets
including the land in question. E-auction took
place on 01.10.2021 which was extended
thereafter. The petitioner participated in the
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auction proceedings and submitted a bid form on
26.10.2021. He was declared as a successful
bidder of the land in question and the buildings.
He was informed accordingly and the payments
were made by the petitioner to the liquidator.
2.6 The Gram Panchayat - Varsamedi addressed
a letter on 12.11.2021 to M/s.Gran Electronics
Private Limited to pay outstanding property tax.
On 15.11.2021, the petitioner requested the
Gram Panchayat to issue No Due Certificate. A
registered sale deed was executed on
17.12.2021. The liquidator by letter dated
17.12.2021 informed the Panchayat stating that
any dues other than secured, unsecured or of the
workman and employees will fall under
operational creditors. Vide notice dated
10.01.2022, the SGST department in an
absolutely illegal manner intimated attachment
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of the land in question. A pencil entry bearing
no.4454 was mutated in favour of the petitioner.
On a request made by the petitioner on
16.02.2022 to certify the entry, the Talati-cum-
Mantri refused to do so on the ground that there
existed a charge of the SGST department. By the
impugned order dated 05.01.2022, the
respondent no.3 has demanded an amount of
Rs.56,01,79,095/- towards outstanding GST dues
and mutated entry no.6295, inter-alia, recording
a charge on the property of the SGST
Department. Hence, the petition.
3. Mr.Devan Parikh learned Senior Advocate
appearing with Mr.S.P.Majmudar learned
advocate for the petitioner would make the
following submissions:
3.1 That the Insolvency and Bankruptcy Code is
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divided into two halves. Firstly, Sections 1 to 32
are concerned with reconstruction of the
company by a resolution process. Secondly,
Section 33 onwards deals with the liquidation if
the resolution plan is not possible.
3.2 That IBC is a complete code which deals
with solutions on a holistic perspective
concerning a company and all stakeholders,
irrespective of whether the provision pertains to
the resolution plan or the liquidation process
which is settled law that all concerns including
the company, creditors, purchasers start with a
'clean slate'. He would submit that as far as the
resolution process is concerned, the judgement
of the Hon'ble Supreme Court in case of
Ghanshayam Mishra and Sons Private
Limited v. Edelweiss Asset Reconstruction
Company Limited, reported in (2021) 9 SCC
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657, has dealt with the issue and the Hon'ble
Supreme Court held that a successful resolution
application cannot suddenly face with undecided
claims after a resolution plan submitted by him
has been approved.
3.3 Mr. Parikh would also rely on a decision of
the Supreme Court in the case of
Paschimanchal Vidhyut Vitran Nigam
Limited v. Raman Ispat Private Limited and
others rendered in Civil Appeal No.7976 of
2012, whereby the Supreme Court has held that
the IBC is a complete code. It has explained
Section 52 of the Code inasmuch as, a secured
creditor can either seek to opt to liquidate his
secured assets on his own or to relinquish his
security and permit the liquidator to sell the
same. A specific procedure has been prescribed
under Section 52(3). If the secured creditor
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liquidates his assets on his own, he can take his
money and for the remaining he stands at the
bottom of the waterfall mechanism. He would
therefore submit that it is conclusively held that
Sections 52 and 53 are complete and
comprehensive code and all rights even of
secured creditors in the secured assets stands
diluted and compromised.
3.4 Mr.Parikh would submit that once the
property was sold by the liquidator in the public
auction and on "as is where is basis", the secured
creditor cannot be allowed to assert an entry for
the asset once sold. He would submit that the
claim of the SGST department was rejected by
the Committee of creditors on 22.02.2020.
Pursuant to an auction notice and proceedings
thereafter, the petitioner had purchased the
property by a registered sale deed dated
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17.10.2021. As a purchaser, the petitioner was
never aware of any dues. Reading the sale deed,
it is very clear that it was categorically decided
that the petitioner shall not be responsible to pay
any dues to the Government.
3.5 Mr.Parikh would submit that even taking
into consideration the position under the general
law as per Section 100 of the Transfer of
Properties Act, a charge created by operation of
law or otherwise is not a mortgage. It is
therefore not an interest in the property but only
it is a legal or a contractual right to the person in
whom the charge is vested. He would submit
that as per the proviso to Section 100, a charge
cannot be enforced against any property in the
hands of the person to whom such property has
been transferred for consideration and without
any notice of change.
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3.6 He would rely on the covenant in the sale
deed wherein it was specifically stated that the
purchaser will not be responsible to pay any due
amount to the Government / Bank / Financial
Institution / GST Department etc.
3.7 Mr.Parikh would submit that even as per
Section 26E, no person can claim a preexisting
charge against the purchaser.
3.8 He would therefore submit that under the
IBC or under the general law, the charge under
VAT Act 2005 cannot be enforced against the
petitioner in the facts of the case.
4. Mr.Pranav Trivedi, learned AGP would oppose
the petition and make the following submissions:
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4.1 He would submit that pursuant to the dues,
a charge is created in Section 48 under the Value
Added Tax Act, 2003. Charge of the State
Government being a crown dues would have
precedence on the charge.
4.2 He would submit that once the property was
sold on "as is where is basis" the dues of the
State Government cannot be wiped out.
4.3 Mr.Trivedi would further submit that the
rigors of Section 31 are not applicable to the
facts of the present case. Since the insolvency
proceedings did not materialize the rights of
dues of the State Government did not get
extinguished. He would submit that once there
was a failure of insolvency resolution process,
the rights of the secured creditor are restored.
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4.4 With regard to the submission of the learned
counsel for the petitioner on "waterfall
mechanism" he would submit that in the present
case since the liquidator has while distributing
the asset sold the asset on 'as is where is basis',
the rights of the State Government stood
secured. They do not stand relinquished even if
the distribution is done after following watershed
mechanism.
4.5 He would distinguish the judgement in the
case of Paschimanchal Vidhyut Vitran Nigam
Limited (supra), because in that case the issue
was with regards to removal of charge prior to
distribution of assets under the watershed
mechanism. In the present case, the sale was on
an 'as is where is basis'.
5. Considered the submissions made by the learned
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advocates for the respective parties.
5.1 A recapitulation of facts would indicate that
one M/s.Gran Electronics Private Limited had
obtained financial facilities from IFCI Limited.
Unable to sustain its business, it had closed its
operations from February 2019 onwards. An
application under Section 7 of the IBC was filed
by one Universal Digital Connect Limited and on
17.01.2020 the National Company Law Tribunal
(NCLT) admitted the petition wherein
moratorium under Section 14 of the Code
became operative and an IRP was appointed.
5.2 On 25.01.2020 a public advertisement was
issued inviting claims. The advertisement/public
announcement was issued under Regulation 6 of
the Insolvency and Bankruptcy Board of India
(Insolvency Resolution Process for Corporate
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Reforms) Regulations 2016. In accordance with
the Regulations a creditor had to provide/submit
proofs of claim by 06.02.2020.
5.3 On 22.02.2020 the IRP was confirmed as a
Resolution Professional and list of claims with
respect to operational creditors were put forth.
5.4 The Sales Tax Department on 30.06.2020
submitted its claim of Rs.77,08,69,644/- which
was rejected by the Resolution Professional.
After a unanimous vote of the Committee of
Creditors to liquidate the company the NCLT
Mumbai, on 12.02.2021 passed an order
liquidating M/s.Gran Electronics Private Limited
('GEPL' for short). The relevant portion of the
order of the NCLT reads as under:
"5. The Applicant further submitted that the
estimated liquidation value of fixed assets of the
Corporate Debtor is Rs.8,59,59,303/- and the total
amount of claims admitted by the Applicant against
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the Corporate Debtor is Rs. 13,20,90,326/-. This
apart from the claim of IFCI Limited which is in the
amount of Rs.191,09,39,984/- which could not be
admitted because of the judgment of the Hon'ble
National Company Law Appellate Tribunal
(NCLAT) in the matter of Dr. Vishnu Kumar
Agarwal v. Piramal Enterprises Limited [Company
Appeal (AT) (Insolvency) No. 346 of 2018]. The
claim of the Sales Tax Department was also not
admitted as requisite documents supporting the
claim of Rs. 77,08,69,644/- were not submitted.
Further in the said meeting, a plan for the
contribution of the liquidation costs was discussed,
showcasing the estimated total value of the assets
to the tune of Rs.190.08 Lakhs. Thereafter, the RP
had informed the CoC that substantial funds in
order to meet the said costs were available."
...
a. Ms. Jovita Reema Mathias, having Registration
No. IBBI/IPA-002/IP-N000337/2017-2018/1094 and
having office at: 506, Inizio, Cardinal Gracious
Road, Chakala, Andheri (E), Mumbai 400099, is
hereby appointed as the Liquidator as provided
under Section 34(1) of the Code.
b. That the Liquidator for conduct of the
liquidation proceedings would be entitled to the
fees as provided in Regulation 4(2)(b) of the IBBI
(Liquidation Process Regulations), 2016.
C. The Liquidator appointed in this case to initiate
liquidation process as envisaged under Chapter-III
of the Code by following the liquidation process
given in the Insolvency & Bankruptcy Board
Regulations, 2016. of India (Liquidation Process)
d. The Liquidator appointed under section 34(1) of
the Code. Will have all powers of the board of
directors, key managerial personnel and the
partners of the Corporate Debtor, as the case may
be, shall cease to have effect and shall be vested
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with the liquidator.
e. That the Corporate Debtor to be liquidated in
the manner as laid down in the Chapter by issuing
Public Notice stating that the Corporate Debtor is
in liquidation with a direction to the Liquidator to
send this order to the ROC under which this
Company has been registered.
f. All the powers of the Board of Directors, key
managerial persons, the partners of the Corporate
Debtor hereafter ceased to exist. All these powers
henceforth vest with the Liquidator."
5.5 A public announcement was made on
19.02.2021 under Regulation 12 of the
Insolvency and Bankruptcy Board of India
(Liquidation Process) Regulations 2016. The
stakeholders were called to submit their claims
with proof on or before 20.03.2021 to the
liquidator. The liquidator addressed a letter on
23.02.2021 to the Assistant Commissioner State
Tax to submit claims in accordance with Rule 16
of the Liquidation Process Regulations. However,
the State Tax Department did not lodge any
claim either physically or through e-mail. An E-
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auction for 01.10.2021 was notified on "AS IS
WHERE IS" "AS IS WHAT IS" and "WHATEVER
THERE IS BASIS". By a subsequent
corrigendum the date was changed to
29.10.2021. The petitioner on 26.10.2021
offered to bid for the land and building and made
a deposit of EMD. On 29.10.2021, the petitioner
was declared as a successful bidder and the
balance amount was credited in the liquidator's
account. A sale deed was executed on
17.12.2021. A sale certificate was issued by the
liquidator of GEPL. The relevant extract of the
covenant with respect to past dues reads as
under:
"The purchaser will not responsible to pay any due
amount to the government / Bank / Financial Institute
/ Semi Government Office / GST Department / VAT
Department / Labour Department / Central Excise
Department / Income Tax Department or any other
Government Department or to the Gram Panchayat or
any other public body or authority in respect thereof
since the same will fall under the waterfall
mechanism and will be dealt with in the manner
specified in Section 53(1) of IBC, 2016."
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5.6 Therefore, there was a clear stipulation
thereunder that the purchaser i.e. the petitioner
will not be responsible to pay any due amount to
the government since the same would fall under
the waterfall mechanism and will be dealt with in
the manner specified in Section 53(1) of IBC,
2016. Certain other covenants in the sale deed
read as under:
"THE VENDOR have not received any notice for
acquisition of the said property from the government
nor any suit or any recovery proceeding or any
proceeding is pending in any court of law or before
any competent authority in respect of the said
property. The Purchaser shall be entitled to get its
name entered in the government record, survey
record and Gram Panchayat record of the said
property by presenting this deed of sale and the
vendor do hereby agree to give statement and
signatures whenever and wherever necessary to
transfer the said property in the name of the
purchaser."
5.7 Since the revenue record showed a charge
of the State Tax Department, the Liquidator
addressed a letter on 22.04.2022 to the office of
the Deputy Commissioner (SGST). Relevant
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extracts of the letter read as under:
"April 22, 2022
Office of Deputy Commissioner (SCST)
Goods and Service Tax Department,
SGST Bhawan, Transport Nagar,
Railway Colony, Gopalpuri,
Gandhidham,
Gujarat-370201
Dear Sir/Madam,
Sub:Request to remove attachment from the
Land records of Gran Electronics Private
Limited-In Liquidation
Ref:GST Registration No. 24AACCG4003A1ZL
As you are aware that the Hon'ble National
Company Law Tribunal (NCLT), Mumbai Bench
vide its order dated January 17, 2020 admitted the
application made by Universal Digital Connect
Limited (Financial Creditor') under Section 7 of the
Insolvency and Bankruptcy Code, 2016 ("the Code/
IBC, 2016') and pronounced the commencement of
Corporate Insolvency Resolution. Process (CIRP) of
Gran Electronics Private Limited ('Corporate
Debtor') and my appointment as an Interim
Resolution Professional ('IRP'). A copy of the said
order is enclosed herewith for your ready
reference as Annexure A. The same was intimated
to your department vide letter dated 12 March,
2020 (enclosed herewith as Annexure B) and in
response to which I had received your claim
however, due to insufficient supporting documents,
the claim submitted by you was not admitted.
...
...
Subsequently, a public announcement in
accordance with Regulation 12 of the IBBI
(Liquidation Process), Regulations, 2016
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(Liquidation Regulations, 2016) was published on
19 February, 2021 in the following newspapers,
the copy of the Public announcement is enclosed
herewith as Annexure E:
sr. no. Edition Publication Language
1. Mumbai Fress Press English
Journal
Navakal Marathi
2. Gandhidham, The Indian English
Kutch Express
Kutch Gujarati
Uday
Further, in compliance with Regulation 16 of the
Liquidation Regulations, 2016, I had requested
your good office to kindly submit or update their
claim on or before 20 March, 2021 in Form C as on
the liquidation commencement date Le. 12
February, 2021 so as to enable me to verify the
same and admit in accordance with Regulation 30
of Liquidation Regulations, 2016. Subsequent to
which, in accordance with Regulation 31(1) & (2)
of the Liquidation Regulations, 2016, I had filed the
List of Stakeholders with the Hon'ble NCLT and
1881 on 44 May, 2021. Further, In accordance
with Regulation 31A of Liquidation Regulations,
2016 a Stakeholders Consultation Committee was
formed considering the claims received and
admitted by me. However, I have not received any
claim from your good office either physically or
through email till date."
...
...
KRBL Limited is now in the process of transferring
title of the said land in their name in the records
(Hak Patrak) of Varsamedi Gram Panchayat ('Gram
Panchayat) however, the same could not be
concluded due to the reason that there is an
attachment of GST department for non- payment of
dues. In view of the same, they have informed
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KRBI. Limited to approach the local GST
department for removal of said attachment &
subsequent to which the Gram Panchayat will be
able to proceed with transferring of title of the said
land in their name."
5.8 This letter was addressed in pursuance of a
letter dated 05.01.2022 of the office of the
Deputy Commissioner (SGST) demanding a sum
of Rs.56,01,79,095.00 and mutating entry 6295
recording a charge.
5.9 The scenario that unfolds on the basis of the
aforesaid recapitulation of facts indicates that at
the stage of the corporate insolvency resolution
process, on the basis of a public announcement,
that State Government had lodged its claim but
the same was rejected for want of sufficient
proof. We have, in the earlier part of this
judgement reproduced the relevant portion of
the order of the NCLT substantiating the fact
that the State at that stage could not prove its
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claim. Post the initiation of resolution process
which failed and it was resolved by the COC to
liquidate the company and after such order of the
NCLT liquidating the company and appointing
the Resolution Professional as the Liquidator, the
Liquidator once again called for lodging of claims
by way of a public announcement under the
liquidation process regulations. To this, as the
letter dated 22.04.2022 indicates no claim was
lodged in accordance with Regulation 31A of the
Liquidation Regulations.
5.10 The relevant regulations, namely
Regulations 6, 7, 10, 12 and 13 of Insolvency
Resolution Process for Corporate persons read as
under:
"6. Public announcement.--(1) An insolvency
professional shall make a public announcement
immediately on his appointment as an interim
resolution professional. Explanation:'Immediately'
means not later than three days from the date of
his appointment. (2) The public announcement
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referred to in sub-regulation (1) shall: (a) be in
Form A of the Schedule; (b) be published-- (i) in
one English and one regional language newspaper
with wide circulation at the location of the
registered office and principal office, if any, of the
corporate debtor and any other location where in
the opinion of the interim resolution professional,
the corporate debtor conducts material business
operations; (ii) on the website, if any, of the
corporate debtor; and (iii) on the website, if any,
designated by the Board for the purpose, (ba) state
where claim forms can be downloaded or obtained
from, as the case may be; (bb) offer choice of three
insolvency professionals identified under
Regulation 4-A to act as the authorised
representative of creditors in each class; and (c)
provide the last date for submission of proofs of
claim, which shall be fourteen days from the date
of appointment of the interim resolution
professional. (3) The applicant shall bear the
expenses of the public announcement which may
be reimbursed by the committee to the extent it
ratifies them.
7. Claims by operational creditors.--(1) A person
claiming to be an operational creditor, other than
workman or employee of the corporate debtor,
shall submit claim with proof to the interim
resolution professional in person, by post or by
electronic means in Form B of the Schedule:
Provided that such person may submit
supplementary documents or clarifications in
support of the claim before the constitution of the
committee. (2) The existence of debt due to the
operational creditor under this regulation may be
proved on the basis of-- (a) the records available
with an information utility, if any; or (b) other
relevant documents, including-- (i) a contract for
the supply of goods and services with corporate
debtor; (ii) an invoice demanding payment for the
goods and services supplied to the corporate
debtor; (iii) an order of a court or tribunal that has
adjudicated upon the non-payment of a debt, if any;
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or (iv) financial accounts. (v) copies of relevant
extracts of Form GSTR-1 and Form GSTR-3B filed
under the provisions of the relevant laws relating
to Goods and Services Tax and the copy of e-way
bill wherever applicable: Provided that provisions
of this sub-clause shall not apply to those creditors
who do not require registration and to those goods
and services which are not covered under any law
relating to Goods and Services Tax.
...
...
10. Substantiation of claims.--The interim
resolution professional or the resolution
professional, as the case may be, may call for such
other evidence or clarification as he deems fit from
a creditor for substantiating the whole or part of
its claim.
...
12. Submission of proof of claims.--(1) Subject to
sub- regulation (2), a creditor shall submit claim
with proof on or before the last date mentioned in
the public announcement. (2) A creditor, who fails
to submit claim with proof within the time
stipulated in the public announcement, may submit
the claim with proof to the interim resolution
professional or the resolution professional, as the
case may be, on or before the ninetieth day of the
insolvency commencement date. (3) Where the
creditor in sub-regulation (2) is a financial creditor
under Regulation 8, it shall be included in the
committee from the date of admission of such
claim: Provided that such inclusion shall not affect
the validity of any decision taken by the committee
prior to such inclusion. 12-A. Updation of claim.--A
creditor shall update its claim as and when the
claim is satisfied, partly or fully, from any source in
any manner, after the insolvency commencement
date.
13. Verification of claims.--(1) The interim
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resolution professional or the resolution
professional, as the case may be, shall verify every
claim, as on the insolvency commencement date,
within seven days from the last date of the receipt
of the claims, and thereupon maintain a list of
creditors containing names of creditors along with
the amount claimed by them, the amount of their
claims admitted and the security interest, if any, in
respect of such claims, and update it. (2) The list of
creditors shall be-- (a) available for inspection by
the persons who submitted proofs of claim; (b)
available for inspection by members, partners,
directors and guarantors of the corporate debtor or
their authorised representatives; (c) displayed on
the website, if any, of the corporate debtor; (ca)
filed on the electronic platform of the Board for
dissemination on its website: Provided that this
clause shall apply to every corporate insolvency
resolution process ongoing and commencing on or
after the date of commencement of the Insolvency
and Bankruptcy Board of India (Insolvency
Resolution Process for Corporate Persons) (Fifth
Amendment) Regulations, 2020; (d) filed with the
Adjudicating Authority; and (e) presented at the
first meeting of the committee."
5.11 Regulations 16, 17, 31, 31A, 32 and 33 of
the Liquidation Process Regulations, 2016 read
as under:
"16. Submission of claim. (1) A person, who claims
to be a stakeholder, shall submit its claim, or update
its claim submitted during the corporate insolvency
resolution process, including interest, if any, on or
before the last date mentioned in the public
announcement. (2) A person shall prove its claim for
debt or dues to him, including interest, if any, as on
the liquidation commencement date.]
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17. Claims by operational creditors. (1) A person
claiming to be an operational creditor of the
corporate debtor, other than a workman or employee,
shall submit proof of claim to the liquidator in person,
by post or by electronic means in Form C of Schedule
II. (2) The existence of debt due to an operational
creditor under this Regulation may be proved on the
basis of- (a) the records available with an information
utility, if any; or (b) other relevant documents which
adequately establish the debt, including any or all of
the following - (i) a contract for the supply of goods
and services with corporate debtor; (ii) an invoice
demanding payment for the goods and services
supplied to the corporate debtor; (iii) an order of a
court or tribunal that has adjudicated upon the non-
payment of a debt, if any; and (iv) financial accounts
...
...
31. List of stakeholders. (1) The liquidator shall
prepare a list of stakeholders, category-wise, on the
basis of proofs of claims submitted and accepted
under these Regulations, with- (a) the amounts of
claim admitted, if applicable, (b) the extent to which
the debts or dues are secured or unsecured, if
applicable, (c) the details of the stakeholders, and (d)
the proofs admitted or rejected in part, and the proofs
wholly rejected. (2) The liquidator shall file the list of
stakeholders with the Adjudicating Authority within
forty-five days from the last date for receipt of claims,
and the filing of the list shall be announced to the
public in the manner specified in Regulation 12(3). (3)
The liquidator may apply to the Adjudicating
Authority to modify an entry in the list of stakeholders
filed with the Adjudicating Authority, when he comes
across additional information warranting such
modification, and shall modify the entry in the manner
directed by the Adjudicating Authority. (4) The
liquidator shall modify an entry in the list of
stakeholders filed with the Adjudicating Authority, in
the manner directed by the Adjudicating Authority
while disposing off an appeal preferred under section
42. (5) The list of stakeholders, as modified from time
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to time, shall be- (a) available for inspection by the
persons who submitted proofs of claim; 21 (b)
available for inspection by members, partners,
directors and guarantors of the corporate debtor; (c)
displayed on the website, if any, of the corporate
debtor.
31A. Stakeholders' consultation committee.
(1) The liquidator shall constitute a consultation
committee within sixty days from the liquidation
commencement date, based on the list of stakeholders
prepared under regulation 31, to advise him on the
matters relating to sale under regulation 32.
(2) The composition of the consultation committee
under sub-regulation (1) shall be as shown in the
Table below:
Table
Class of Description Number of
Stakeholders Representatives
(1) (2) (3)
Secured financial Where claims of Number of
creditors, who such creditors creditors in the
have admitted during category, subject
relinquished the liquidation to a maximum of 2
their security process is less
interests under than 50% of
section 52 liquidation value
Where claims of Number of
such creditors creditors in the
admitted during category, subject
the liquidation to a maximum of 4
process is at least
50% of liquidation
value
Unsecured Where claims of Number of
financial such creditors creditors in the
creditors admitted during category, subject
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the liquidation to a maximum of 1
process is less
than 25% of
liquidation value
Where claims of Number of
such creditors creditors in the
admitted during category, subject
the liquidation to a maximum of 2
process is at least
25% of liquidation
value
employees
Operational Where claims of Number of
creditors other such creditors creditors in the
than Workmen, admitted during category, subject
employees and the liquidation to a maximum of 1
Governments process is less
than 25% of
liquidation value
Where claims of Number of
such creditors creditors in the
admitted during category, subject
the liquidation to a maximum of 2
process is at least
25% of liquidation
value
partners, if any
(3) The liquidator may facilitate the stakeholders of
each class to nominate their representatives for
inclusion in the consultation committee.
(4) If the stakeholders of any class fail to nominate
their representatives, the required number of
stakeholders with the highest claim amount in that
class shall be included in the consultation committee.
(5) Subject to the provisions of the Code and these
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regulations, representatives in the consultation
committee shall have access to all relevant records
and information as may be required to provide advice
to the liquidator under sub-regulation (1).
(6) The liquidator shall convene a meeting of the
consultation committee when he considers it
necessary and shall convene a meeting of the
consultation committee when a request is received
from at least fifty-one percent of representatives in
the consultation committee.
(7) The liquidator shall chair the meetings of
consultation committee and record deliberations of
the meeting.
(8) The liquidator shall place the recommendation of
committee of creditors made under sub-regulation (1)
of regulation 39C of the Insolvency and Bankruptcy
Board of India (Insolvency Resolution Process for
Corporate Persons) Regulations, 2016, before the
consultation committee for its information.
(9) The consultation committee shall advise the
liquidator, by a vote of not less than sixty-six percent
of the representatives of the consultation committee,
present and voting.
(10) The advice of the consultation committee shall
not be binding on the liquidator: Provided that where
the liquidator takes a decision different from the
advice given by the consultation committee, he shall
record the reasons for the same in writing.]
[32A. Sale as a going concern. (1) Where the
committee of creditors has recommended sale under
clause (e) or (f) of regulation 32 or where the
liquidator is of the opinion that sale under clause (e)
or (f) of regulation 32 shall maximise the value of the
corporate debtor, he shall endeavour to first sell
under the said clauses. (2) For the purpose of sale
under sub-regulation (1), the group of assets and
liabilities of the corporate debtor, as identified by the
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committee of creditors under sub-regulation (2) of
regulation 39C of the Insolvency and Bankruptcy
Board of India (Insolvency Resolution Process for
Corporate Persons) Regulations, 2016 shall be sold as
a going concern. (3) Where the committee of creditors
has not identified the assets and liabilities under sub-
regulation (2) of regulation 39C of the Insolvency and
Bankruptcy Board of India (Insolvency Resolution
Process for Corporate Persons) Regulations, 2016, the
liquidator shall identify and group the assets and
liabilities to be sold as a going concern, in
consultation with the consultation committee. (4) If
the liquidator is unable to sell the corporate debtor or
its business under clause (e) or (f) of regulation 32
within ninety days from the liquidation
commencement date, he shall proceed to sell the
assets of the corporate debtor under clauses (a) to (d)
of regulation 32.]
33. Mode of sale. (1) The liquidator shall ordinarily
sell the assets of the corporate debtor through an
auction in the manner specified in Schedule I.
(2) The liquidator may sell the assets of the corporate
debtor by means of private sale in the manner
specified in Schedule I when- (a) the asset is
perishable; (b) the asset is likely to deteriorate in
value significantly if not sold immediately; (c) the
asset is sold at a price higher than the reserve price
of a failed auction; or (d) the prior permission of the
Adjudicating Authority has been obtained for such
sale: Provided that the liquidator shall not sell the
assets, without prior permission of the Adjudicating
Authority, by way of private sale to- (a) a related party
of the corporate debtor; (b) his related party; or (c)
any professional appointed by him.
(3) The liquidator shall not proceed with the sale of an
asset if he has reason to believe that there is any
collusion between the buyers, or the corporate
debtor's related parties and buyers, or the creditors
and the buyer, and shall submit a report to the
Adjudicating Authority in this regard, seeking
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appropriate orders against the colluding parties."
5.12 Sections 7, 29, 31, 33, 52 and 53 of the IBC
read as under:
"7. Appointment of professionals. (1) A liquidator
may appoint professionals to assist him in the
discharge of his duties, obligations and functions
for a reasonable remuneration and such
remuneration shall form part of the liquidation
cost. (2) The liquidator shall not appoint a
professional under sub-regulation (1) who is his
relative, is a related party of the corporate debtor
or has served as an auditor to the corporate debtor
in the five years preceding the liquidation
commencement date. (3) A professional appointed
or proposed to be appointed under sub-regulation
(1) shall disclose the existence of any pecuniary or
personal relationship with any of the stakeholders,
or the concerned corporate debtor as soon as he
becomes aware of it, to the liquidator.
...
29. Mutual credits and set-off. Where there are
mutual dealings between the corporate debtor and
another party, the sums due from one party shall
be set off against the sums due from the other to
arrive at the net amount payable to the corporate
debtor or to the other party. Illustration: X owes
Rs. 100 to the corporate debtor. The corporate
debtor owes Rs. 70 to X. After set off, Rs. 30 is
payable by X to the corporate debtor.
31. List of stakeholders. (1) The liquidator shall
prepare a list of stakeholders, category-wise, on
the basis of proofs of claims submitted and
accepted under these Regulations, with- (a) the
amounts of claim admitted, if applicable, (b) the
extent to which the debts or dues are secured or
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unsecured, if applicable, (c) the details of the
stakeholders, and (d) the proofs admitted or
rejected in part, and the proofs wholly rejected. (2)
The liquidator shall file the list of stakeholders with
the Adjudicating Authority within forty-five days
from the last date for receipt of claims, and the
filing of the list shall be announced to the public in
the manner specified in Regulation 12(3). (3) The
liquidator may apply to the Adjudicating Authority
to modify an entry in the list of stakeholders filed
with the Adjudicating Authority, when he comes
across additional information warranting such
modification, and shall modify the entry in the
manner directed by the Adjudicating Authority. (4)
The liquidator shall modify an entry in the list of
stakeholders filed with the Adjudicating Authority,
in the manner directed by the Adjudicating
Authority while disposing off an appeal preferred
under section 42. (5) The list of stakeholders, as
modified from time to time, shall be- (a) available
for inspection by the persons who submitted proofs
of claim; 21 (b) available for inspection by
members, partners, directors and guarantors of the
corporate debtor; (c) displayed on the website, if
any, of the corporate debtor.
...
33. Mode of sale. (1) The liquidator shall ordinarily
sell the assets of the corporate debtor through an
auction in the manner specified in Schedule I.
(2) The liquidator may sell the assets of the
corporate debtor by means of private sale in the
manner specified in Schedule I when- (a) the asset
is perishable; (b) the asset is likely to deteriorate in
value significantly if not sold immediately; (c) the
asset is sold at a price higher than the reserve
price of a failed auction; or (d) the prior permission
of the Adjudicating Authority has been obtained for
such sale: Provided that the liquidator shall not sell
the assets, without prior permission of the
Adjudicating Authority, by way of private sale to-
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(a) a related party of the corporate debtor; (b) his
related party; or (c) any professional appointed by
him. (3) The liquidator shall not proceed with the
sale of an asset if he has reason to believe that
there is any collusion between the buyers, or the
corporate debtor's related parties and buyers, or
the creditors and the buyer, and shall submit a
report to the Adjudicating Authority in this regard,
seeking appropriate orders against the colluding
parties.
...
52 A secured creditor in the liquidation
proceedings may--
(1) A secured creditor in the liquidation
proceedings may--
(a) relinquish its security interest to the liquidation
estate and receive proceeds from the sale of assets
by the liquidator in the manner specified in section
53; or
(b) realise its security interest in the manner
specified 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 verify 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
maintained by an information utility; or
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(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 law as applicable to the
security interest being realised and to the secured
creditor and apply the proceeds to recover the
debts 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 off the security, the secured
creditor may make an application to the
Adjudicating Authority 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 creditor to realise
security interest in accordance with law for the
time being in force.
(7) Where the enforcement of the security interest
under sub-section (4) yields an amount by way of
proceeds which is in excess of the debts due to the
secured creditor, the secured creditor shall--
(a) account to the liquidator for such surplus; and
(b) tender to the liquidator any surplus funds
received from the enforcement of such secured
assets.
(8) The amount of insolvency resolution process
costs, due from secured creditors who realise their
security interests in the manner provided in this
section, shall be deducted from the proceeds of any
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realisation by such secured creditors, 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 assets 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."
...
53-Distribution of assets.
(1) Notwithstanding anything to the contrary
contained in any law enacted by the Parliament or
any State Legislature for the time being in force,
the proceeds from the sale of the liquidation assets
shall be distributed in the following order of
priority and 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;
(b) the following debts which shall rank equally
between and among the following :--
(i) workmen's dues for the period of twenty-four
months 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 set out in section 52;
(c) wages and any unpaid dues owed to employees
other than workmen for the period of twelve
months preceding the liquidation commencement
date;
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(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 part of the period of
two years preceding the liquidation
commencement date;
(ii) debts owed to a secured creditor for any
amount unpaid 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 order of priority under
that sub-section shall be disregarded by the
liquidator.
(3) The fees payable to the liquidator shall be
deducted proportionately from the proceeds
payable to each class of recipients under sub-
section (1), and the proceeds to the relevant
recipient shall be distributed after such deduction.
Explanation.--For the purpose of this section--
(i) it is hereby clarified that at each stage of the
distribution of proceeds in respect of a class of
recipients that rank equally, each of the debts will
either be paid in full, or will be paid in equal
proportion within the same class of recipients, if
the proceeds are insufficient to meet the debts in
full; and
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(ii) the term "workmen's dues" shall have the same
meaning as assigned to it in section 326 of the
Companies Act, 2013."
5.13 Extensive reliance was paid to the decision
of the Supreme Court in the case of
Ghanshayam Mishra and Sons Private
Limited (supra). The Supreme Court in the
aforesaid case after an extensive review of the
IBC and various decisions rendered thereunder,
the Court observed that once the resolution plan
is approved, it becomes binding on the
stakeholders including creditors. Relevant
paragraphs of the judgement read as under:
"65. Bare reading of Section 31 of the I&B Code
would also make it abundantly clear, that once the
resolution plan is approved by the
Adjudicating Authority, after it is 61 satisfied,
that the resolution plan as approved by CoC meets
the requirements as referred to in subsection (2) of
Section 30, it shall be binding on the Corporate
Debtor and its employees, members, creditors,
guarantors and other stakeholders. Such a
provision is necessitated since one of the dominant
purposes of the I&B Code is, revival of the
Corporate Debtor and to make it a running
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concern.
66. The resolution plan submitted by
successful resolution applicant is required to
contain various provisions, viz., provision for
payment of insolvency resolution process costs,
provision for payment of debts of operational
creditors, which shall not be less than the
amount to be paid to such creditors in
the event of liquidation of the Corporate Debtor
under section 53; or the amount that would have
been paid to such creditors, if the amount to be
distributed under the resolution plan had been
distributed in accordance with the order of priority
in subsection (1) of section 53, whichever is
higher. The resolution plan is also required to
provide for the payment of debts of financial
creditors, who do not vote in favour of 62 the
resolution plan, which also shall not be less than
the amount to be paid to such creditors in
accordance with subsection (1) of section 53 in the
event of a liquidation of the Corporate Debtor.
Explanation 1 to clause (b) of subsection (2)
of Section 30 of the I&B Code clarifies for the
removal of doubts, that a distribution in
accordance with the provisions of the said clause
shall be fair and equitable to such creditors. The
resolution plan is also required to provide for the
management of the affairs of the Corporate Debtor
after approval of the resolution plan and also the
implementation and supervision of the
resolution plan. Clause (e) of subsection (2) of
Section 30 of I&B Code also casts a duty on RP to
examine, that the resolution plan does not
contravene any of the provisions of the law for the
time being in force.
67. Perusal of Section 29 of the I&B Code read
with Regulation 36 of the Regulations would
reveal, that it requires RP to prepare an
information memorandum containing various
details of the Corporate Debtor so that the
resolution applicant submitting a plan is aware of
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the 63 assets and liabilities of the Corporate
Debtor, including the details about the creditors
and the amounts claimed by them. It is also
required to contain the details of guarantees that
have been given in relation to the debts of the
corporate debtor by other persons. The details
with regard to all material litigation and an
ongoing investigation or proceeding initiated
by Government and statutory authorities are
also required to be contained in the
information memorandum. So also the details
regarding the number of workers and
employees and liabilities of the Corporate
Debtor towards them are required to be contained
in the information memorandum.
68. All these details are required to be contained in
the information memorandum so that the
resolution applicant is aware, as to what are the
liabilities, that he may have to face and
provide for a plan, which apart from
satisfying a part of such liabilities would also
ensure, that the Corporate Debtor is revived
and made a running establishment. The
legislative intent of making the resolution
plan binding on all the stakeholders after it gets 64
the seal of approval from the Adjudicating
Authority upon its satisfaction, that the resolution
plan approved by CoC meets the requirement as
referred to in subsection (2) of Section 30 is, that
after the approval of the resolution plan, no
surprise claims should be flung on the
successful resolution applicant. The dominant
purpose is, that he should start with fresh slate on
the basis of the resolution plan approved.
69. This aspect has been aptly explained by
this Court in the case of Committee of Creditors
of Essar Steel India Limited through
Authorised Signatory (supra).
"107. For the same reason, the impugned
NCLAT judgment [Standard Chartered Bank v.
Satish Kumar Gupta, 2019 SCC OnLine NCLAT
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388] in holding that claims that may exist apart
from those decided on merits by the resolution
professional and by the Adjudicating
Authority/Appellate Tribunal can now be
decided by an appropriate forum in terms of
Section 60(6) of the Code, also militates against
the rationale of Section 31 of the Code. A
successful resolution applicant cannot suddenly
be faced with "undecided" claims after the
resolution plan submitted by him has been
accepted as 65 this would amount to a hydra head
popping up which would throw into uncertainty
amounts payable by a prospective resolution
applicant who would successfully take over the
business of the corporate debtor. All claims must
be submitted to and decided by the resolution
professional so that a prospective resolution
applicant knows exactly what has to be paid in
order that it may then take over and run the
business of the corporate debtor. This the
successful resolution applicant does on a fresh
slate, as has been pointed out by us
hereinabove. For these reasons, NCLAT
judgment must also be set aside on this
count."
70. In view of this legal position, we could have
very well stopped here and held, that, the
observation made by NCLAT in the appeal filed by
EARC to the effect, that EARC was entitled to
take recourse to such remedies as are
available to it in law, is impermissible in law.
71. As held by this Court in the case of
Pr. Commissioner of Income Tax vs. Monnet
Ispat and Energy Ltd.10 , in view of provisions of
Section 238 of I&B Code, the provisions thereof
will have an overriding effect, if there is any
inconsistency with any of the provisions of the law
for the time being in force or any instrument
having effect by virtue of any such law. As such,
the observations made by NCLAT to the
aforesaid effect, if permitted to remain, would
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frustrate the very purpose for which the I&B Code
is enacted.
72. However, in Civil Appeal arising out of Special
Leave Petition (Civil) No.11232 of 2020, Writ
Petition (Civil) No.1177 of 2020 and Civil Appeals
arising out of Special Leave Petition (Civil) Nos.
71477150 of 2020, the issue with regard to the
statutory claims of the State Government and the
Central Government in respect of the period prior
to the approval of resolution plan by NCLT,
will have to be considered.
73. Vide Section 7 of Act No.26 of 2019 (vide S.O.
2953(E), dated 16.8.2019 w.e.f. 16.8.2019), the
following words have been inserted in Section 31
of the I&B Code. "including the Central
Government, any State Government or any local
authority to whom a debt in respect of the payment
of dues arising under any law for the time being
in force, such as authorities to whom
statutory dues are owed"
74. As such, with respect to the proceedings, which
arise after 16.8.2019, there will be no difficulty.
After the 67 amendment, any debt in respect of the
payment of dues arising under any law for the time
being in force including the ones owed to the
Central Government, any State Government or
any local authority, which does not form a part of
the approved resolution plan, shall stand
extinguished.
...
79. In the Rajya Sabha debates, on 29.7.2019,
when the Bill for amending I&B Code came up for
discussion, there were certain issues raised by
certain Members. While replying to the issues
raised by certain Members, the Hon'ble
Finance Minister stated thus:
"IBC has actually an overriding effect. For
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instance, you asked whether IBC will
override SEBI. Section 238 provides that IBC will
prevail in case of inconsistency between two laws.
Actually, Indian courts will have to decide, in
specific cases, depending upon the material
before them, but largely, yes, it is IBC.
There is also this question about
indemnity for successful resolution applicant.
The amendment now is clearly making it binding
on the Government. It is one of the ways in
which we are providing that. The Government
will not raise any further claim. The Government
will not make any further claim after
resolution plan is approved. So, that is going to
be a major, major sense of assurance for the
people who are using the resolution plan.
Criminal matters alone would be proceeded
against individuals and not company. There will be
no criminal proceedings against successful
resolution applicant. There will be no criminal
proceedings against successful resolution applicant
for fraud by previous promoters. So, I hope that is
absolutely clear. I would want all the hon.
Members to recognize this message and
communicate further that this Code,
therefore, gives that comfort to all new bidders. So
now, they need not be scared that the taxman will
come after them for the faults of the earlier
promoters. No. Once the resolution plan is
accepted, the earlier promoters will be dealt
with as individuals for their criminality but not
the new bidder who is trying to restore the
company. So, that is very clear.
(emphasis supplied)"
80. It could thus be seen, that in the speech
the Hon'ble Finance Minister has
categorically stated, that Section 238 provides
that I&B Code will prevail in case of inconsistency
between two laws. She also stated, that there was
question about indemnity for successful
resolution applicant and that the amendment was
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clearly making it binding on the Government.
She stated, that the Government will not make
any further claim after resolution plan is approved.
So, that is going to be a major sense of assurance
for the people who are using the resolution plan.
She has categorically stated, that she would want
all the Hon'ble Members to recognize this
message and 73 communicate further that I&B
Code gives that comfort to all new bidders. They
need not be scared that the taxman will come after
them for the faults of the earlier promoters. She
further states, that once the resolution plan is
accepted, the earlier promoters will be dealt with
as individuals for their criminality but not the new
bidder who is trying to restore the company.
...
84. It is clear, that the mischief, which was
noticed prior to amendment of Section 31 of I&B
Code was, that though the legislative intent
was to extinguish all such debts owed to
the Central Government, any State
Government or any local authority, including
the tax authorities once an approval was Granted
to the resolution plan by NCLT; on account of there
being some ambiguity, the State/Central
Government authorities continued with the
proceedings in respect of the debts owed to them.
In order to remedy the said mischief, the
legislature thought it appropriate to clarify the
position, that once such a resolution plan was
approved by the Adjudicating Authority, all such
claims/dues owed to the State/Central Government
or any local authority including tax authorities,
which were not part of the resolution plan shall
stand extinguished.
...
93. As discussed hereinabove, one of the principal
objects of I&B Code is, providing for revival of the
Corporate Debtor and to make it a going concern.
I&B Code is a complete Code in itself. Upon
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admission of petition under Section 7, there are
various important duties and functions entrusted
to RP and CoC. RP is required to issue
a publication inviting claims from all the
stakeholders. He is required to collate the
said information and submit necessary details
in the information memorandum. The resolution
applicants submit their plans on the basis of the
details provided in the information
memorandum. The resolution plans undergo
deep scrutiny by RP as well as CoC. In the
negotiations that may be held between CoC and the
resolution applicant, various modifications may be
made so as to ensure, that while paying
part of the dues of financial creditors as well
as operational creditors and other stakeholders,
the Corporate Debtor is revived and is made an on-
going concern. After CoC approves the plan, the
Adjudicating Authority is required to arrive at a
subjective satisfaction, that the plan conforms to
the requirements as are provided in subsection (2)
of Section 30 of the I&B Code. Only thereafter, the
Adjudicating Authority can Grant its approval to
the plan. It is at this stage, that the plan becomes
binding on Corporate Debtor, its employees,
members, creditors, guarantors and other
stakeholders involved in the resolution Plan.
The legislative intent behind this is, to freeze all
the claims so that the resolution applicant starts on
a clean slate and is not flung with any surprise
claims. If that is permitted, the very calculations
on the basis of which the resolution applicant
submits its plans, would go haywire and the plan
would be unworkable.
94. We have no hesitation to say, that
the word "other stakeholders" would squarely
cover the Central Government, any State
Government or any local authorities. The
legislature, noticing that on account of
obvious omission, certain tax authorities were not
abiding by the mandate of I&B Code and
continuing with the proceedings, has brought out
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the 2019 amendment so as to cure the said
mischief. We therefore hold, that the 2019
amendment is declaratory and clarificatory in
nature and therefore retrospective in operation.
...
CONCLUSION
102. In the result, we answer the questions framed
by us as under:
102.1 That once a resolution plan is duly
approved by the Adjudicating Authority under
subsection (1) of Section 31, the claims as
provided in the resolution plan shall stand frozen
and will be binding on the Corporate Debtor and
its employees, members, creditors, including
the Central Government, any State Government
or any local authority, guarantors and other
stakeholders. On the date of approval of
resolution plan by the Adjudicating Authority,
all such claims, which are not a part of
resolution plan, shall stand extinguished and no
person will be entitled to initiate or continue any
proceedings in respect to a claim, which is not
part of the resolution plan;
102.2 The 2019 amendment to Section 31 of
the I&B Code is clarificatory and declaratory
in nature and therefore will be effective from the
date on which I&B Code has come into effect;
102.3 Consequently all the dues including
the statutory dues owed to the Central
Government, any State Government or any local
authority, if not part of the resolution plan, shall
stand extinguished and no proceedings in
respect of such dues for the period prior to the
date on which the Adjudicating Authority
Grants its approval under Section 31 could be
continued."
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5.14 What therefore emerges is that on the facts
of the present case the CIRP was undertaken.
Claims were invited and the State during the
process failed to substantiate it and at the stage
of liquidation did not lodge its claim. In light of
the judicial pronouncement above the debt
therefore did not form a part of the resolution
plan and therefore stood extinguished.
5.15 Admittedly state tax dues and the State
would be a claimant as an operational creditor.
The claim lodged during insolvency process
stood rejected and during the liquidation, no
such claim was lodged. This fact is reiterated at
the cost of repetition as this would lead us thus
to examine the provisions of Section 52 and 53 of
the IBC.
5.16 Reading Section 52 would indicate that a
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secured creditor in the liquidation proceedings
may relinquish its security interest to the
liquidation asset and receive proceeds on the
sale of assets by the liquidation in the manner
specified under section 53 or realise its security
asset by enforcing its claim or settling it. In the
facts of the present case having failed to assert
its claim the State as an operational
creditor/stakeholder/secured creditor would have
to fall in line as per the "waterfall mechanism"
under Section 53 of the IBC.
5.17 The decision of the Supreme Court in the
case of Paschimanchal Vidhyut Vitran Nigam
Limited (supra) appreciating the provisions held
as under:
"25. During 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
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foreclose, recover or enforce any security interest.
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'
26. Section 53 of the IBC, which contains the
'waterfall mechanism', provides for the order of
distribution of assets. It states as follows: "(1)
Notwithstanding anything to the contrary
contained in any law enacted by the Parliament or
any State Legislature for the time being in force,
the proceeds from the sale of the liquidation assets
shall be distributed in the following order of
priority and 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; (b) the following debts which shall rank
equally between and among the following:-- (i)
workmen's dues for the period of twenty-four
months 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 set out in section 52; (c)
wages and any unpaid dues owed to employees
other than workmen for the period of twelve
months preceding the 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 part of the period of two years
preceding the liquidation commencement date; (ii)
debts owed to a secured creditor for any amount
unpaid 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. 14
(2) Any contractual arrangements between
recipients under sub-section (1) with equal
ranking, if disrupting the order of priority under
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that sub-section shall be disregarded by the
liquidator. (3) The fees payable to the liquidator
shall be deducted proportionately from the
proceeds payable to each class of recipients under
sub-section (1), and the proceeds to the relevant
recipient shall be distributed after such deduction.
Explanation - For the purpose of this section-- (i) it
is hereby clarified that at each stage of the
distribution of proceeds in respect of a class of
recipients that rank equally, each of the debts will
either be paid in full, or will be paid in equal
proportion within the same class of recipients, if
the proceeds are insufficient to meet the debts in
full; 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)."
27. The 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.
28. Debts owed to a secured creditor, whenever
such secured creditor "has relinquished security in
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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 secured creditor does not relinquish
security, the priority of claim is lower [Section 53
(1) (e) (ii)] in respect of "any amount unpaid
following 15 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)].
29. The 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 financial creditors in addition
to all kinds of secured creditors for promoting the
availability of credit and developing a market for
unsecured financing (including the development of
bond markets). In the long run, this would increase
the availability of finance, reduce the cost of
capital, promote entrepreneurship and lead to
faster economic growth. The government also will
be the beneficiary of this process as economic
growth will increase revenues. Further, efficiency
enhancement and consequent greater value
capture through the proposed insolvency regime
will bring in additional gains to both the economy
and the exchequer."
****************** ***************
"For the remaining creditors who participate in the
collective 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 these are typically paid out
net of the costs of insolvency resolution and
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Liquidation. In order to bring the practices in India
in-line with the global practice, and to ensure that
the objectives of this proposed Code is met, the
Committee recommends that the waterfall in
Liquidation should be as follows: 1. Costs of IRP
and liquidation. 2. Secured creditors and Workmen
dues capped up to three months from the start of
IRP. 3. Employees capped up to three months. 4.
Dues to unsecured financial creditors, debts
payable to workmen in respect of the period
beginning twelve months before the liquidation
commencement date and ending three months
before the liquidation commencement date; 5. Any
amount due to the State Government and the
Central Government in respect of the whole or any
part of the period of two years before the 16
liquidation commencement date; any debts of the
secured creditor for any amount unpaid following
the enforcement of security interest 6. Remaining
debt 7. Surplus to shareholders."
30. The 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
end, it encourages secured creditors to relinquish
their security 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 under the Code, as
they would have been under the Companies Act,
1956. It was noted that, to some extent, this
provision intends 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
security interest, they would only recover to the
extent of their security interest, and would claim
any excess dues remaining unpaid under Section
53(1)(e) of the liquidation waterfall. Thus, the
Committee was of the view that this provision
could not have been intended to provide secured
creditors who relinquish their security interest,
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priority of repayment over their entire debt
regardless of the extent of their security interest,
as it would tantamount to respecting a right that
has never existed. 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 Section 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 Committee agreed that the priority
for recovery to secured creditors under Section
53(1)(b)(ii) should be applicable only to the extent
of the value of the security interest that is
relinquished 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
the provisions of the Code."
31. The 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 to reorganization and
insolvency resolution of corporate persons,
partnership firms and individuals in a time bound
manner for maximization of value of assets of such
persons, to promote entrepreneurship, availability
of credit and balance the interests of the
stakeholders including alteration in the 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."
32. In 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
Committee stated: "Section 53 of the Code places
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secured creditors who have relinquished their
security above unsecured financial creditors. Thus,
clear distinction has been drawn between
unsecured and secured creditors who join the
liquidation proceedings for the purpose of the
payment waterfall in case of liquidation. Unsecured
creditors are ranked above secured creditors who
have unpaid debts following enforcement of
securities as it is presumed that such secured
creditors have recovered most of their dues by
enforcement of their security outside the
liquidation proceedings. Moreover, as stated in the
BLRC Report, protection of dues of unsecured
creditors is intentional in order to encourage the
market for corporate bonds and other unsecured
debt. With respect to dues of workmen, they have
been placed at the highest priority along with
secured creditors who have relinquished their
security, second only to IRP costs under the
payment waterfall provided in section 53 of the
Code."
33. The 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 may-- (a) relinquish its
security interest to the liquidation estate and
receive proceeds from the sale of assets by the
liquidator in the manner specified in section 53; or
(b) realise its security interest in the manner
specified 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
verify 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
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maintained 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 law as applicable to the
security interest being realised and to the secured
creditor and apply the proceeds to recover the
debts 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 may make an application to the
Adjudicating Authority 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 creditor to realise
security interest in accordance with law for the
time being in force. (7) Where the enforcement of
the security interest under sub-section (4) yields an
amount by way of proceeds which is in excess of
the debts due to the secured creditor, the secured
creditor shall-- (a) account to the liquidator for
such surplus; and (b) tender to the liquidator any
surplus funds received from the enforcement of
such secured assets. (8) The amount of insolvency
resolution process costs, due from secured
creditors who realise their security interests in the
manner provided in this section, shall be deducted
from the proceeds of any realisation by such
secured creditors, 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 assets 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.
...
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37. The 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 two options to a secured creditor. First, the
secured creditor in a liquidation proceeding may
relinquish its security interest and receive the
proceeds from the sale of assets by the liquidator
in the manner specified in Section 53 of the Code.
The second 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
realises the security interest, he shall inform the
liquidator of such security interest and identify the
asset subject to such security interest to be
realised. The liquidator is to verify the security
interest and shall permit the secured creditor to
realise such 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 secured 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
apply 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 faces resistance
from the corporate debtor or any other person
connected therewith in taking possession of,
selling or otherwise disposing off the security. Sub-
section (6) to Section 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
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Code, however, is important as it states that where
on enforcement of the security interest, an amount
by way of proceeds is in excess of the debts due to
the secured creditor, the secured 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, due from secured creditors who
realise their security interests in the manner
provided in the section, are to be deducted from
the proceeds of any realisation by such secured
creditors. They are to be transferred and included
in the liquidation estate. Sub-section (9) to Section
52 of the Code states that where proceeds for
realisation of the secured assets are not adequate
to repay the 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) to Sub-section (1) to Section 53 of the
Code. 67. To protect the interest of the workmen
where the secured creditor does not relinquish its
security interest to fall Under Section 53 of the
Code, Regulation 21A of the Insolvency and
Bankruptcy Board of India (Liquidation Process)
Regulations, 2016 has been enacted, and it
requires that the secured creditor, who opts to
realise its security interest as per Section 52 of the
Code, has to pay as much towards the amount
payable under the Clause (a) and Sub-clause (i) to
Clause (b) of Sub-section (1) to Section 53 of the
Code to the 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. ******* 69. We 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
Legislature for the time being in force, the
proceeds from the sale of liquidation assets shall
be distributed in the order of priority, which is
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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
assets and then provides the manner in which the
creditors are to be paid. Even the rights of the
secured creditor falling Under Section 53 of the
Code to enforce, realise, settle, compromise or deal
with the secured assets as applicable to the
security interest are diluted and compromised. 70.
Clause (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-section (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 have the same meaning as assigned to it
in Section 326 of the 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. What is significant here is that under Clause
(b) to Sub-section (1) to 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 workmen. Clause (i) of
Explanation to Section 53 of the Code states that
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where the distribution of proceeds in respect of
class of recipients that rank equally, each of the
debts would be paid either in full or would be paid
in equal proportion within the same class of
recipients, if the proceeds are insufficient to meet
the debts in full. Ex facie, the Clause is very just
and fair. It is to be noted that the wages and
unpaid dues owed to employees other than the
workmen fall in Clause (c), which is below Clause
(b) to Sub-section (1) to Section 53 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. Clause (d) of Sub-section
(1) to Section 53 of the Code relates to financial
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 interest,
have been clubbed together in Clause (e) of Sub-
section (1) to Section 53 of the Code, and have to
be ranked equally 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
Sub-section (1) to Section 53 of the Code, and
equity shareholders or partners fall under Clause
(h) of Sub-section (1) to Section 53 of the Code.
Sub-section (2) to Section 53 of the Code states
that any contractual arrangements between
recipients Under Sub-section (1) with equal
ranking, if disrupting the order of priority under
the said Sub-section will be disregarded by the
liquidator 71. The waterfall mechanism is based on
a structured mathematical formula, and the
hierarchy is created in terms of payment of debts
in order of priority with several qualifications,
striking down any one of the provisions or
rearranging the hierarchy in the waterfall
mechanism may lead to several trips and disrupt
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the working of the equilibrium as a whole and
stasis, resulting in instability. Every change in the
waterfall mechanism is bound to lead to cascading
effects on the balance of rights and interests of the
secured creditors, operational creditors and even
the Central and State Governments. Depending
upon the facts, in some cases, the waterfall
mechanism in the Code may be more beneficial
than the hierarchy provided Under Section 326 of
the Companies Act, 2013 and vice-versa.
Therefore, we hesitate and do not accept the
arguments of the Petitioners. 72. The Code is
based on the organic evolution of law and is a
product of an extensive consultative process to
meet 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 of the
stakeholders. The guiding principle for the Code in
setting the priority of payments in liquidation was
to bring the practices in India in line with global
practices. In the waterfall mechanism, after the
costs of the insolvency resolution process 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 creditor, the interests
of workmen are protected under the Code. In fact,
the secured creditors are taking significant hair-
cut 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, who are financial
institutions in which the general public has
invested money, and also ensures that the
economic activity and revival of a viable company
is not hindered because it has suffered or fallen
into a financial crisis. The Code focuses on
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bringing additional gains to both the economy and
the exchequer 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
other 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 and ex
facie harsh and unequitable as to classify as
manifestly arbitrary, these would be interfered
with by the court."
...
49. Rainbow 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 a resolution process
and not during liquidation. Section 53, as held
earlier, enacts the waterfall mechanism providing
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 expenses 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 Central or State Government.
50. 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
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[in the absence of a specific enumeration 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 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 also evident from a
reading of the preamble to the Act itself."
5.18 Reading of the aforesaid paras would
indicate that once having relinquished its
interest under Section 52, the State cannot
continue the insistence of maintaining the charge
in the revenue records and its claim will have to
stand in priority.
5.19 The argument of the State that since the
asset was sold on a condition of "AS IS WHERE
IS BASIS", the charge of the State was rightly
recorded is misconceived as the deed already
records that the purchaser shall not be liable for
payment of any outstanding dues of the
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government. This too was, in the opinion of the
Court a clause that would relieve the petitioner
of the liability to pay tax dues. In light of the
decision in the case of Ghanshayam Mishra
and Sons Private Limited (supra), the
petitioner was entitled to a clean slate.
5.20 Even otherwise as per Section 100 of the
Transfer of Property Act, a charge cannot be
enforced against any property in the hands of a
person to whom such property has been
transferred for consideration and without notice
of such charge. The State moved in to get a
charge registered on 15.12.2022 much later.
6. For the aforesaid reasons, petition is allowed.
The order dated 05.01.2022 is set aside and so
also is the consequential entry no.6295 mutated
in the revenue record. The respondents are
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directed to certify entry No.4454 in the revenue
records pursuant to the sale of land in question
by registered sale deed dated 17.12.2021. No
costs.
sd/-
(BIREN VAISHNAV, J)
sd/-
(D. M. DESAI,J)
ANKIT SHAH
