State Entitled To Secured Creditor Status Under IBC Due To Statutory Charge Created U/S 48 Of GVAT Act: NCLAT

The National Company Law Appellate Tribunal (NCLAT) New Delhi bench of Justice Rakesh Kumar Jain (Judicial Member) and Mr. Naresh Salecha (Technical Member) has held that after completion of the assessment of the Corporate Debtor under Gujarat Value Added Tax (GVAT) Act before Corporate Insolvency Resolution Process (CIRP), a charge in view section 48 of the GVAT Act is created by operation of law on the property of the Corporate Debtor in favour of the State Tax Officer therefore the dues of the State is entitled to be treated as a secured creditor under Section 53 of the Insolvency and Bankruptcy Code, 2016 (Code). Brief Facts: M/s Harsh Foundry Fluxes & Alloys filed an application under Section 9 of the Code, against Twenty First Century Castings Pvt. Ltd. (Corporate Debtor), which was admitted on 16.01.2020. M/s Suryadeep Alloys Steel Casting Pvt. Ltd. was the only resolution applicant. Committee of Creditors (CoC) with 100% voting, approved the plan on 28.08.2020 pursuant to which Resolution Professional (RP) filed an application bearing I.A No. 591 of 2020 before the Adjudicating Authority under Section 30(6) r/w Section 31 of the Code for seeking approval of the resolution plan. The said application has been allowed vide impugned order dated 09.12.2020. The present appeal has been filed under section 61 of the Code against this order. Contentions: The Appellant submitted that a sum of Rs. 11,70,47,801/- has accrued pertaining to assessment year 2009-11 and 2014 – 16 of the Corporate Debtor (CD) under the GVAT Act, 2003 (in short 'Act') and CST Act, therefore, a charge was created on the property of the CD by operation of law. It was further submitted that in the plan, though the amount of Rs. 11,70,47,801/- has been admitted but nothing has been given to the Appellant being an operational Creditor. It was also argued that it would receive its claim at par with other secured creditors on the ground that a charge has been created by operation of law and in this regard relied upon a decision of the Supreme Court in the case of State Tax Officer Vs. Rainbow Papers Limited (2022). Per contra, the Respondent submitted that the Appellant had filed proof of claim as an Operational Creditor (OC) only and that statutory dues owed to governmental authorities such as VAT, GST and other taxes do not constitute secured debt until and unless they are specifically backed by a registered charge. It was further contended that electricity dues or statutory dues owed to government bodies do not enjoy precedence over secured creditors or other classes unless backed by valid security interest, therefore, the dues of the Appellant falling within the meaning of Government Dues and in liquidation will rank lower in priority under Section 53(1)(e)(i) of the Code. Observations: The Tribunal noted that the Supreme Court in Rainbow Papers (Supra) held that the NCLAT erred in holding that Section 53 of the IBC overrides Section 48 of the GVAT Act. Section 53, though beginning with a non-obstante clause, does not conflict with Section 48. It further added that under Section 53(1)(b)(ii), debts owed to secured creditors, including the State under the GVAT Act, rank equally with certain other debts. The State qualifies as a secured creditor under Section 3(30) of the IBC, which includes security interests created by law and does not exclude government authorities. The Tribunal further observed that the Respondent's argument that the decision in Paschimanchal Vidyut Vitran Nigam Ltd. casts doubt on the correctness of Rainbow Papers is of no merit, as Rainbow Papers remains good law and has not been overruled by the Hon'ble Supreme Court. It further added that the Respondents' submission that the Appellant filed its claim in Form B as an Operational Creditor or that the CoC approved the plan in its wisdom is inconsequential in light of the Supreme Court's interpretation of Section 48 of the GVAT Act, which is central to the present appeal. Based on the above, it held that “in view of Section 48 of the GVAT Act a charge was created on the property of the CD by way of operation of law in favour of the Appellant as a result of which the Appellant is entitled to be treated as secured creditor under Section 53 of the code.” The Tribunal concluded that the resolution plan is in violation of the statutory provisions and is directly hit by the judgement of the Supreme court rendered in the case of Rainbow papers (Supra) as it is clearly a case of material irregularity, in terms of Section 30(2) of the Code. Accordingly, the present appeal was allowed and the impugned order was set aside. Case Title: State Tax Officer Versus Premraj Ramratan Laddha & Ors. Case Number: Comp. App. (AT) (Ins) No. 720 of 2021 & I.A. No. 3172 of 2024 Judgment Date: 16/05/2025 For Appellant : Ms. Ritu Guru, Advocate. For Respondents ...

State Entitled To Secured Creditor Status Under IBC Due To Statutory Charge Created U/S 48 Of GVAT Act: NCLAT

Mohd Malik Chauhan

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