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SUPREME COURT OF INDIA
INDIRA BANERJEE, A.S. BOPANNA, JJ.
State Tax Officer (1) - Appellant
Versus
Rainbow Papers Limited - Respondent
Civil Appeal No. 1661, 2568 of 2020
Decided on : 06-09-2022
(A) Insolvency and Bankruptcy Code, 2016 – Section 30 – Corporate Resolution Plan – First charge over property of Corporate Debtor – There can be no question of acceptance of a Resolution Plan that is not in conformity with statutory provisions of Section 31(2) of IBC – Condition precedent for approval of a resolution plan is that resolution plan should meet requirements of Sub-Section (2) of Section 30 of IBC – A resolution plan which does not meet requirements of Sub-Section (2) of Section 30 of IBC, would be invalid and not binding on 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 State when there are outstanding statutory dues of a Corporate Debtor – If a Resolution Plan is ex-facie not in conformity with law and/or provisions of IBC and/or Rules and Regulations framed thereunder, Resolution would have to be rejected. (Paras 45, 46 and 51)
(B) Insolvency and Bankruptcy Code, 2016 – Section 53 – Gujarat Value Added Tax Act, 2003 – Section 48 – First charge over property of Corporate Debtor – Committee of Creditors, which might include financial institutions and other financial creditors, cannot secure their own dues at the cost of statutory dues owed to any Government or Governmental Authority or for that matter, any other dues – If a company is unable to pay its debts which should include its statutory dues to Government and/or other authorities and there is no plan which contemplates dissipation of those debts in a phased manner, uniform proportional reduction, company would necessarily have to be liquidated and its assets sold and distributed in manner stipulated in Section 53 of IBC – Section 48 of GVAT Act is not contrary to or inconsistent with Section 53 or any other provisions of IBC – State is a secured creditor under GVAT Act – Section 3(30) of 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 – Definition of secured creditor in IBC does not exclude any Government or Governmental Authority. (Paras 53, 54, 56 and 57)
(C) Interpretation of Statute – Ordinarily, use of word “shall” connotes a mandate/binding direction, while use of expression “may” connotes discretion – Expression “may”, if circumstances so demand can be construed as “Shall” – If statute says, a person may do a thing, he may also not do that thing. (Paras 50 and 51)
Facts of the case:
Present appeals under Section 62 of the Insolvency and Bankruptcy Code, 2016, is against a judgment and order dated 19th December, 2019, passed by National Company Law Appellate Tribunal (NCLAT) dismissing Company Appeal (AT)(Insolvency) No. 404 of 2019 filed by Appellant, against an order dated 27th February 2019 of Adjudicating Authority, rejecting application filed by the appellants and holding that Government cannot claim first charge over property of Corporate Debtor, as Section 48 of the Gujarat Value Added Tax, 2003, 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 GVAT Act, cannot prevail over Section 53 of IBC.
Short question raised by the appellant in this appeal is, whether the provisions of the IBC and, in particular, Section 53, overrides Section 48 of GVAT Act
Findings of Court:
This judgment and order will not, prevent the Resolution Applicant from submitting a plan in light of observations made here, making provisions for the dues of statutory creditors like the appellant.
Result : Appeals allowed.
JUDGMENT :
Indira Banerjee, J.
These appeals under Section 62 of the Insolvency and Bankruptcy Code, 2016, hereinafter referred to as ‘IBC’, is against a judgment and order dated 19th December, 2019, passed by the National Company Law Appellate Tribunal (NCLAT) dismissing Company Appeal (AT)(Insolvency) No. 404 of 2019 filed by the Appellant, against an order dated 27th February 2019 of the Adjudicating Authority, rejecting the application being I.A No.224/271/272/337 of 2018 and P-01 of 2019 in C.P. No. (IB) 88/9/NCLT/AHM/2017 filed by the appellants and holding 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.
2. The short question raised by the appellant in this appeal is, whether the provisions of the IBC and, in particular, Section 53 thereof, overrides Section 48 of the GVAT Act which is set out herein below for convenience:-
“48. Tax to be first charge on property. - Notwithstanding anything to the contrary contained in any law for the time being in force, any amount payable by a dealer or any other person on account of tax, interest or penalty for which he is liable to pay to the Government shall be a first charge on the property of such dealer, or as the case maybe, such person.”
3. 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.
4. 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.
5. On or about 8th July, 2016, 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 being land at Survey No.2379 and 2381 situated at Rajpur, Taluka Kadi on 8th October, 2018.
6. One Neeraj Papers Private Limited, as operational creditor of the respondent, filed Company Petition (IB) No.88 of 2017 under Section 9 of the IBC before Ahmedabad Bench of the National Company Law Tribunal (NCLT), for initiation of the Corporate Insolvency Resolution Process (CIRP) against the respondent.
7. By an order dated 12th September, 2017, the said Company Petition [Company Petition (IB) No. 88 of 2017] filed by the said Neeraj Papers Private Limited was admitted. One George Samuel was appointed Interim Resolution Professional (IRP) on 22nd September, 2017.
8. After appointment of the said George Samuel as IRP, claims were invited from Creditors under Section 15 of the IBC by issuance of newspaper publications. The last date for submission of claims was 5th October 2017.
9. After receipt of claims, a Committee of Creditors (CoC) was constituted on 10th October 2017. At its first meeting, the CoC passed a resolution to replace the IRP. Accordingly, Ramachandra D. Choudhary, a Chartered Accountant, was appointed as Resolution Professional (RP). The appointment of Mr. Choudhary was approved by the NCLT by an order dated 6th November 2017.
10. The appellant filed a claim before the RP in the requisite Form B, claiming that Rs.47.36 crores (approximately), was due and payable by the respondent to the appellant, towards its dues under the GVAT Act. The claim was filed beyond time.
11. After admission of the CIRP and appointment of the RP, one Kushal Limited submitted a Resolution Plan. Various Creditors had objected to the Resolution Plan.
12. The Tourism Finance Corporation of India Limited, a financial cre
(1) Definition of secured creditor in IBC does not exclude any Government or Governmental Authority.(2) If a Resolution Plan is ex-facie not in conformity with law and/or provisions of IBC and/or Rul....
The court reaffirmed the status of statutory dues under the Gujarat VAT Act as secured interests, emphasizing the supremacy of judicial interpretations in insolvency proceedings.
The main legal principle established in the judgment is the binding effect of the resolution plan approved by the NCLT on stakeholders, as well as the extinguishment of claims not part of the approve....
The approved Resolution Plan under the Insolvency and Bankruptcy Code binds all creditors, extinguishing claims not included, ensuring no surprise liabilities arise post-approval.
Approved resolution plans under the Insolvency and Bankruptcy Code extinguish all pre-CIRP claims not included, including statutory dues from tax authorities.
The approval of a resolution plan under the IBC extinguishes all claims not included in the plan, including tax liabilities, ensuring a fresh start for the corporate debtor.
The approval of a resolution plan under the IBC extinguishes all claims not included in the plan, including tax liabilities.
(1) Insolvency Resolution Plan – Once resolution plan is approved by Adjudicating Authority, after it is satisfied, that resolution plan as approved by Committee of Creditors (CoC) meets requirements....
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