The Supreme Court in the case of State Tax Officer vs. Rainbow Papers Limited held the Section 48 of the Gujrat Value Added Tax Act (“GVAT”) is not contrary to or inconsistent with Section 53 or any other provisions of the Insolvency and Bankruptcy Code. Under Section 53(1)(b)(ii), the debts owed to a secured creditor, would include the State under the GVAT Act.
BRIEF FACTS
The appeal was filed under Section 62 of the Insolvency and Bankruptcy Code, 2016, hereinafter referred to as ‘IBC’ against the judgment passed by the National Company Law Appellate Tribunal (NCLAT) which dismissed the Company Appeal filed by the Appellant against an order passed by the Adjudicating Authority which rejected their application.
The application filed by the appellant hold that the government cannot claim first charge over the property of the Corporate Debtor, as Section 48 of the Gujarat Value Added Tax,2003, hereinafter referred to as the “GVAT Act”, which provides for first charge on the property of a dealer in respect of any amount payable by the dealer on account of tax, interest, penalty etc. under the said GVAT Act, cannot prevail over Section 53 of the IBC.
The main question raised by the appellant in this appeal was whether the provisions of the IBC and, in particular, Section 53 thereof, override Section 48 of the GVAT Act.
The respondent, a company within the meaning of the Companies Act, 2013 is engaged in the business of manufacture and sale of Crafts and Oars within and outside the State of Gujarat since 16th April, 1990. The appellant has, from time to time, been assessed for Value Added Tax (VAT) and Central Sales Tax (CST) under the GVAT Act. It is stated that an amount of Rs.53,71,65,489/- is due from the Respondent to the Sales Tax authorities towards CST and VAT, as per the statement enclosed at Page 44 of the Paper Book. Recovery proceedings were initiated against the respondent, in respect of its dues for the year 2011-2012, and the appellant attached the property of the respondent.
The appellant challenged the Resolution Plan by making an application before the Ahmedabad Bench of the NCLT contending that Government dues could not be waived off. Adjudicating Authority being the Ahmedabad Bench of the NCLT rejected the application made by the appellant as not maintainable. The appellant filed an appeal before the NCLAT against the aforesaid order of the Adjudicating Authority, under Section 61 of the IBC. The appeal has been dismissed by the NCLAT by the judgment and order impugned.
COURT’S OBSERVATION
The apex court after going through the judgment and order passed by the NCLAT and NCLT observed that Appellant was not required to file any claim. Read with Regulation 10, (Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations,2016 hereinafter referred to as “the 2016 Regulations”.) The appellant would only be required to substantiate the claim by production of such materials as might be called for. The time stipulations are not mandatory as is obvious from Sub-Regulation (2) of Regulation 14 which enables the Interim Resolution Professional or the Resolution Professional, as the case may be, to revise the amounts of claims admitted, including the estimates of claims made under Sub-Regulation (1) of the said Regulation as soon as might be practicable, when he came across additional information warranting such revision. The court further observed that there was no obligation on the part of the State to lodge a claim in respect of dues which are statutory dues for which recovery proceedings have also been initiated.
The appellants were never called upon to produce materials in connection with the claim raised by the Appellants towards statutory dues. The Adjudicating Authority as well as the Appellate Authority/NCLAT misconstrued the Regulations. The statutory charge in terms of Section 48 of the GVAT Act, the claim of the Tax Department of the State, squarely falls within the definition of “Security Interest” under Section 3(31) of the IBC and the State becomes a secured creditor under Section 3(30) of the Code. the Adjudicating Authority was required to examine if the Resolution Plan met the requirements of Section 30(2) of the IBC.The word “satisfied” used in Section 31(1) contemplates a duty on the Adjudicating Authority to examine the Resolution Plan – The Resolution Plan cannot be approved by way of an empty formality.
Under Section 31 of the IBC, a resolution plan as approved by the Committee of Creditors under Sub-Section (4) of Section 30 might be approved by the Adjudicating Authority only if the Adjudicating Authority is satisfied that the resolution plan as approved by the Committee of Creditors meets the requirements as referred to in Sub-Section (2) of Section 30 of the IBC. The condition precedent for approval of a resolution plan is that the resolution plan should meet the requirements of Sub-Section (2) of Section 30 of the IBC. A resolution plan which does not meet the requirements of Sub-Section (2) of Section 30 of the IBC, would be invalid and not binding on the Central Government, any State Government, any statutory or other authority, any financial creditor, or other creditor to whom a debt in respect of dues arising under any law for the time being in force is owed. Such a resolution plan would not bind the State when there are outstanding statutory dues of a Corporate Debtor. Section 48 of the GVAT Act is not contrary to or inconsistent with Section 53 or any other provisions of the IBC. Under Section 53(1)(b)(ii), the debts owed to a secured creditor, which would include the State under the GVAT Act, are to rank equally with other specified debts including debts on account of workman’s dues for a period of 24 months preceding the liquidation commencement date.The State is a secured creditor under the GVAT Act. Section 3(30) of the IBC defines secured creditor to mean a creditor in favour of whom security interest is credited. Such security interest could be
created by operation of law. The definition of secured creditor in the IBC does not exclude any Government or Governmental Authority.
The Supreme Court held that the Appellate Authority (NCLAT) and the Adjudicating Authority erred in law in rejecting the application/appeal of the appellant. The delay in filing a claim cannot be the sole ground for rejecting the claim.
CASE: State Tax Officer vs. Rainbow Papers Limited
CITATION: Civil Appeal No. 2568 of 2020
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