State Tax Officer Vs Rainbow Papers Limited (Supreme Court of India)
Held that Section 48 of the GVAT Act is not contrary to or inconsistent with Section 53 of the IBC. U/s. 53(1)(b)(ii), the debts owed to a secured creditor, which would include the State under the GVAT Act. Accordingly, the Government can claim first charge over the property of the Corporate Debtor
Facts- These appeal against the judgement and order passed by NCLAT dismissing the appeal of the appellants 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 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.
Conclusion- Stated that the 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.
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 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.
We are constrained to hold that the Appellate Authority (NCLAT) and the Adjudicating Authority erred in law in rejecting the application/appeal of the appellant.
FULL TEXT OF THE SUPREME COURT JUDGMENT/ORDER
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 20112012, 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 creditor of the Respondent-Corporate Debtor moved an interlocutory application No.273 of 2018 contending that the Tourism Finance Corporation of India Limited had wrongly been categorised as an unsecured financial creditor.
13. By an order Sr. No.JCCT/Div-4/Mahesana/NCLT/case/ O.W.No.3090 dated 22nd October, 2018, the appellant called upon the RP to confirm the claim of the appellant towards outstanding tax dues.
14. By a letter dated 22nd October, 2018, the Resolution Professional informed the appellant that the entire claim of the appellant had been waived off. The order of the RP was conveyed to the appellant by an email dated 6th November, 2018.
15. On or about 20th December, 2018, the appellant challenged the Resolution Plan by making an application being I.A No. P-01 of 2019 before the Ahmedabad Bench of the NCLT contending that Government dues could not be waived off. The appellant prayed for payment of total dues of Rs.47,35,72,314/- towards VAT/CST on the ground that the Sales Tax Officer was a secured creditor.
16. By an order dated 27th February, 2019 in IA No. 224/271/272/337 of 2018 and P-01 of 2019 in CP No.(IB) 88 of 2017, the Adjudicating Authority being the Ahmedabad Bench of the NCLT rejected the application made by the appellant as not maintainable. The Adjudicating Authority (NCLT) Ahmedabad held:-
“13. The Resolution Applicant again filed the amended resolution plan on 26.05.2018. On scrutiny RP issued certificate on 28.05.2018 in compliance of the Regulation 39(2). Accordingly, RP/the applicant issued notice dated 29.05.2018 for convening the eighth and final meeting of CoC on 04.06.2018. In the said meeting, CoC sought certain changes in the plan. In view of that, the Resolution Applicant was permitted to provide the addendum to the revised plan within a period of one (1) day which was accepted and duly acted upon by the Resolution applicant.
14. The said amended revised resolution plan along with the addendum dated 05.06.2018 was placed for e-voting before the members of the CoC which took place on two (2) days i.e. on 06.06.2018 and 07.06.2018. The CoC in their aforesaid e-voting resolved to approve the resolution plan along with the addendum with majority of 79.79% voting share in favour of the Resolution Applicant.
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16. On filing of the application by the RP under Section 30(6) read with section 31 of the Code, notices were issued to the CoC and suspended management. CoC approved and conceded to the fact of filing application by the RP under section 33(6) of the Code and have supported the argument advanced by the Ld. Counsel of the RP. No representation received from the suspended management.”
17. On or about 8th April, 2019, the appellant filed an appeal before the NCLAT against the aforesaid order dated 27th February 2019 of the Adjudicating Authority, under Section 61 of the IBC. The appeal has been dismissed by the NCLAT by the judgment and order impugned.
18. The NCLAT held:-
“34. The Adjudicating Authority noticed that the Appellant approached the ‘Resolution Professional’ on 22nd October, 2018 whereas the ‘Resolution Plan’ dated 26th May, 2018 along with Addendum dated 5th June, 2018 was approved by the ‘Committee of Creditors’ with voting majority of 72.79 per cent in favour of the ‘Resolution Plan’. Thus, the claim was made by the Appellant at a much belated stage not only before the ‘Resolution Professional’ but also before the Adjudicating Authority
35. We find that the Appellant has not filed claim within time. It approached the ‘Resolution Professional’ at belated stage after approval of the ‘Resolution Plan’ by the Adjudicating Authority.
36. Learned counsel for the ‘Resolution Professional’ submitted that the claim of the Appellant- ‘State Tax Officer (1)’ comes within the meaning of ‘Operational Debt’ as defined under Section 5(21). The claim of the Appellant also does not fall within the meaning of ‘Secured Creditor’ as defined under Section 3(30) read with Section 3(31) of the I&B Code.
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38. In view of Statement of Objects and Reasons of the ‘I&B Code’ read with Section 53 of the ‘I&B Code’, the Government cannot claim first charge over the property of the ‘Corporate Debtor’. Section 48 cannot prevail over Section 53. Therefore, the Appellant – ‘State Tax Officer-(1)’ do not come within the meaning of ‘Secured Creditor’ as defined under Section 3(30) read with Section 3(31) of the I&B Code’.
39. Further, as ‘Sales Tax Department’ filed its claim at belated stage after the plan had been approved by the ‘Committee of Creditors’, the ‘Resolution Professional’ had no jurisdiction to entertain the same and rightly not entertained.”
