- It held the state is “a secured creditor under the GVAT Act” and said Section 3(30) of the IBC defines secured creditor to mean a creditor in favour of whom security interest is credited
- The bench set aside the resolution plan approved by the CoC (Committee of Creditors) and directed that the Resolution Professional may consider a fresh plan in the light of its observations
NE NEWS SERVICE
NEW DELHI, SEP 6
The Supreme Court on Tuesday ruled Gujarat is a “secured creditor” for tax purposes, saying financial creditors cannot secure their own dues at the cost of statutory ones owed to a government authority in approving a resolution plan to revive a sick company under the Insolvency and Bankruptcy Code (IBC).
A bench comprising justices Indira Banerjee and A S Bopanna also set aside the orders of the tribunals by which the resolution plan to revive Rainbow Papers Limited, a private firm, was approved, on the ground that it did not consider the dues of over Rs 53.71 crore payable to the state government on account of VAT and Central Sales Tax (CST) under the Gujarat Value Added Tax (GVAT) Act, premier news agency Press Trust of India reported.
“If the Resolution Plan ignores the statutory demands payable to any State Government or a legal authority, altogether, the Adjudicating Authority is bound to reject the Resolution Plan,” the judgment, penned by Justice Banerjee on behalf of the bench, said.
It held the state is “a secured creditor under the GVAT Act” and said Section 3(30) of the IBC defines secured creditor to mean a creditor in favour of whom security interest is credited.
“Such security interests could be created by the operation of law. The definition of secured creditor in the IBC does not exclude any Government or Governmental Authority.
“In our considered view, 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.”
Elaborating further, the judgment said if a company is unable to pay its debts, which should include its statutory dues to the government or other authorities and there is no plan which contemplates dissipation of those debts in a phased manner, uniform proportional reduction, the company would necessarily have to be liquidated and its assets sold and distributed in the manner stipulated under the IBC.
It said the provision of the Gujarat state law was not contrary to or inconsistent with the provision of the IBC.
The debts owed to a secured creditor, which would include the state under the GVAT Act, are to rank equally with other specified debts under the IBC, it said.
“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… The appeals are allowed. The impugned orders are set aside,” it held.
The bench set aside the resolution plan approved by the CoC (Committee of Creditors) and directed that the Resolution Professional may consider a fresh plan in the light of its observations.
The verdict came on the appeal of a Sales Tax Officer of the Gujarat government against the 2019 judgment passed by the National Company Law Appellate Tribunal dismissing the plea of the state.
The state tax department had moved the NCLAT against rejection of its plea that the government can claim first charge over the property of the corporate debtor under a provision of the Gujarat Value Added Tax Act.
