Tax authorities lose secured creditor status if claims are not timely filed during liquidation processes under the IBC, as clarified by recent amendments.

JUDGMENT :

N.SATHISH KUMAR, J.

Aggrieved over the order of the learned Single Judge, dismissing the Writ Petition, by holding that the petitioner is to recover the amount from the person to whom amounts were paid by the liquidator through the liquidation process, the present Writ Appeal has been filed.

2. The Writ Petition has been originally filed by the appellant to quash the attachment over the properties purchased under public auction conducted under the provisions of the ' Insolvency Bankruptcy Code, 2016 ' (hereinafter referred to as 'the IBC').

3. The following of the brief facts, which are necessary for the disposal of the Writ Appeal, are as follows:

3.1. The subject property originally held by the third respondent viz., RLS Alloys Private Limited. On the basis of the application filed by one M/s. Foseco India Limited, an operational creditor, the third respondent company was ordered to be liquidated by the 'National Company Law Tribunal' (hereinafter referred to as 'NCLT'), vide order dated 14.06.2019. As there was no successful resolution application, the NCLT ordered the company into liquidation. In a public auction conducted by the liquidator, the Writ Petitioner become successful bidder and has purchased the property on 24.10.2024. It is relevant to note that for tax arrears under the Tamil Nadu Value Added Tax, the order of attachment was passed by the first respondent as early as on 03.02.2016. The same has been reflected in the Encumbrance Certificate. The Writ Petitioner being successful auction purchaser under the IBC proceedings, sought for quashing of the attachment order.

4. The learned Single Judge, after considering the facts of the case, while dismissing the Writ Petition, has held that tax due is also secured and the first respondent also comes under the purview of the secured creditor and hence, secured interest is created. Therefore, the liquidator could not have ignored the rights of the 1^st respondent, as the 1^st respondent is a secured creditor within the meaning of Section 3(30) of the IBC. Challenging the said order, the present Writ Appeal has been filed.

5. The learned Senior Counsel appearing for the appellant would submit that the learned Single Judge has simply followed the judgments of the Hon'ble Supreme Court in State Tax Officer Vs. Rainbow Papers Ltd. , reported in (2023) 9 SCC 545 and came to the conclusion, whereas other judgments of the Hon'ble Supreme Court have taken a different view and have clearly held that Rainbow Papers's case will apply on the facts of a particular case.

5.1. Further, it is also submitted by the learned Senior Counsel appearing for the Appellant that now the amendment has been brought for removing the doubts. Section 2 of the Amendment Act, amending Section 3(31) of the IBC, clarifies the nature of security interest. That amendment also received the assent of the President on 06.04.2026. Therefore, once the clarificatory amendment was brought, it has to be held that it applies only retrospectively and therefore, the interpretation of the learned Single Judge that the first respondent has also come within the purview of the secured creditor was not correct.

5.2. It is further submitted that once the claim application has not been filed in the liquidation process and a sale has been held under the IBC under Section 3(30) of the IBC, the assets of the corporate debtor have to be dealt with only under Section 53 of the IBC, which is commonly known as “waterfall mechanism”. Therefore, the learned Single Judge h