2026 Supreme(Online)(NCLAT) 531

NATIONAL COMPANY LAW APPELLATE TRIBUNAL
Arun Baroka, Member (Technical)
State Tax Officer, Unit-92 – Appellant
Versus
Keyur J. Shah – Respondent
Company Appeal (AT) (Insolvency) No. 1984 of 2024

A subsequent statutory lien under state tax laws cannot override a prior, registered security interest of a financial creditor in IBC liquidation proceedings, especially when the creditor exercises rights under Section 52.

Headnote:(A) Insolvency and Bankruptcy Code, 2016 - Sections 3(30), 35, 36, 52, 53, 61, 238 - Gujarat Value Added Tax Act, 2003 - Section 48 - Central Sales Tax Act, 1956 - Section 9(2) - Transfer of Property Act, 1882 - Section 48 - Companies Act, 2013 - Section 77(3) - IBBI (Liquidation Process) Regulations, 2016 - Regulation 21(A) - Priority between a statutory lien claimed by a State Tax Department and a prior registered security interest created in favor of a financial creditor - A subsequent statutory lien created in 2019 cannot override a prior registered security interest created in 2012 - Principle of chronological priority - A secured creditor who exercises its right under Section 52 of the IBC to realize its security interest outside the liquidation estate is entitled to enforce such interest without interference from a later statutory charge - The liquidator's duty is to facilitate such enforcement after verification - The judgment in State Tax Officer vs. Rainbow Papers Ltd. (2022) does not apply where there is a competing prior registered security interest or where Section 52 rights have been invoked - The IBC priority scheme under Section 53 cannot be disrupted by statutory dues, as affirmed in Paschimanchal Vidyut Vitran Nigam Ltd. v. Raman Ispat Pvt. Ltd. (2023). (Paras 39-55)

(B) Liquidator - Duties and Conduct - Liquidator acts strictly in accordance with Sections 35 and 52 IBC and the Liquidation Regulations - Allegations of improper conduct are unfounded where the liquidator reclassified a claim as a secured operational creditor post-Rainbow Papers judgment, and where the statutory lien was not disclosed in the claim form or registered with the Registrar of Companies - The liquidator's actions in facilitating the secured creditor's enforcement under Section 52 were bonafide and within statutory duty - Adverse observations against the liquidator were expunged. (Paras 17-38, 50)

Facts of the case:
The appeal challenges an order of the NCLT, Ahmedabad, which directed the State Tax Officer (appellant) to release a charge created on the land of the Corporate Debtor (CD), Gangotri Glazed Tiles Private Limited. The charge was claimed by the appellant under the GVAT Act and CST Act for tax dues for assessment years 2010-2013. A secured financial creditor, a bank, had a registered charge over the same property created in 2012, which was perfected and notified. CIRP commenced on 27.01.2020, and liquidation on 02.11.2020. The secured creditor filed a claim in Form D, electing to realize its security interest under Section 52(1)(b) IBC, and did not relinquish it. The appellant's alleged lien was created through a communication to the village officer on 20.08.2019, but was not disclosed in its claim form or registered with the ROC. The liquidator initially admitted the appellant's claim as an operational creditor but later reclassified it as a secured operational creditor after the Rainbow Papers judgment.

Findings of Court:
The NCLAT held that the chronological priority lies with the bank's charge (2012) over the appellant's subsequent statutory lien (2019). The appellant's right as a secured creditor under the GVAT Act does not give it priority over a prior registered security interest. The financial creditor validly exercised its Section 52 rights to realize its security interest outside the liquidation estate, and the liquidator correctly facilitated this. The Rainbow Papers judgment does not apply to a case with a competing prior secured creditor or where Section 52 enforcement is involved. The liquidator's conduct was found bonafide, and the impugned order directing release of the charge was upheld. Adverse observations against the liquidator were expunged.

Issues: The main issues were whether a subsequent statutory lien (2019) can override a prior registered security interest (2012) in a liquidation proceeding, and whether the liquidator acted improperly.

Ratio Decidendi: The court held that a subsequent statutory lien cannot override a prior registered security interest. The principle of chronological priority applies. Where a secured creditor has exercised its right under Section 52 IBC to enforce its security interest outside the liquidation estate, the liquidator cannot interfere, and the state's statutory charge does not take precedence. The IBC's overriding effect (Section 238) and its priority scheme under Section 53 cannot be disrupted by state tax statutes.

Result: Appeal dismissed. The impugned order of the NCLT was upheld. Adverse observations against the liquidator were expunged. No order as to costs.

Table of Content
1. this appeal challenges an nclt order regarding a statutory tax lien and a secured creditor's right under ibc. (Para 1)
2. the state tax department argues that its statutory lien under the gvat and cst acts creates a secured interest that prevails over the financial creditor's charge. (Para 2 , 3 , 4 , 5 , 6 , 7 , 8 , 9 , 10 , 11 , 12 , 13 , 14 , 15 , 16)
3. the liquidator and financial creditor contend that the prior registered security interest and section 52 ibc rights override the subsequent statutory lien. (Para 17 , 18 , 19 , 20 , 21 , 22 , 23 , 24 , 25 , 26 , 27 , 28 , 29 , 30 , 31 , 32 , 33 , 34 , 35 , 36 , 38)
4. the tribunal holds that the prior registered charge of the financial creditor prevails over the later statutory lien, and the liquidator's actions under section 52 were proper. (Para 39 , 40 , 41 , 42 , 43 , 44 , 45 , 46 , 47 , 48 , 49 , 50 , 51 , 52 , 53 , 54 , 55 , 56)
5. the appeal is dismissed, and the liquidator's conduct is upheld with adverse observations expunged. (Para 57)

J U D G M E N T

(Hybrid Mode)

[Per: Arun Baroka, Member (Technical)]

1.This is an Appeal under section 61 of the IBC 2016, Challenging the Order / Judgment dated 30.07.2024 passed by the National Company Law Tribunal, Ahmedabad Bench in Interlocutory Application No.742 (AHM) 2022 in CP (IB) No.473 of 2018, whereby the learned National Company Law Tribunal, Ahmedabad Bench, has allowed the application of the secured financial creditor of the CD-Gangotri Glazed Private Limited (Respondent No.2) and has directed the appellant to release the charge created by the appellant on the land situated at Morbi District (erstwhile Rajkot District), Sub- District –Morbi, Village- Dhuva, Revenue Survey No.130 paiki, land admeasuring 14678.80 sq. Mtrs, industrial purpose land (NA) along with construction thereon.

Submissions of the Appellant

2. The recovery of tax from the Corporate Debtor (CD) is due under the GVAT and CST Act for the Assessment Years 2010-11, 2011-12, 2012-13, which is prior to the initiation of the CIRP proceedings. Notices were being issued by the appellant for the assessment period of 01.04.2010 to 31.03.2011, 01.04.2011 to 31.03.2012 under Section 9(2) of the Central Sales Tax Act, 1956 read with Section 48 of the GVAT Act, 2003. Also notices were issued for the Assessment period of 01.04.2012 to 31.03.2013 under Section 9(2) of the Central Sales Tax Act, 1956 read with Section 48 of the GVAT Act, 2003.

3. Appellant had addressed a letter on 25.11.2016 to the Talati-cum- Mantri of Dhuva Village and Mamlatdar of Wankaner Taluka, that the tax are dues of the corporate debtor under the GVAT Act and CST Act, which is pending to the tune of Rs.4,33,26,447/- for the assessment year 2010-11 and for the assessment year to the tune of Rs.11,88,32,469/- with interest. On 17.03.2017 and 28.08.2018 the State Tax Officer once again had issued reminder letter to the Talati-cum-Mantri of Dhuva to put charge /attachment on the property of the corporate debtor. On 22.01.2019, 16.05.2019 and 20.08.2019, the State Tax Officer once again had addressed a letter to the Talati-cum-Mantri, Dhuva for attaching the property of the Corporate Debtor. In the village form No.2 also, the said above entries are reflected for attachment stating that the State Tax Officer had made an attachment on 26.08.2019.

4. Section 9 application came to be allowed on 27.01.2020 and IRP (Interim Resolution Professional) came to be appointed. Mr. Keyur J. Shah was appointed as main IRP. On 13.08.2020, the Resolution Professional of the Corporate debtor addressed a letter to the State Tax Officer requesting for withdrawal of the lien on the Bank Account of the HDFC Bank. On 2.11.2020, the Hon'ble NCLT Ahmedabad bench passed an order for liquidation in respect of the corporate debtor and appointed the RP as the liquidator of the corporate debtor. On 27.11.2020, the appellant addressed a letter to the RP submitting the claim of the State Tax Department along with all r

Click Here to Read the rest of this document