NCLAT Rules, State Entitled To Secured Creditor Status Under IBC Due To Statutory Charge Created U/S 48 Of GVAT Act
Pranav B Prem
The National Company Law Appellate Tribunal (NCLAT), Principal Bench, New Delhi, comprising Justice Rakesh Kumar Jain (Judicial Member) and Mr. Naresh Salecha (Technical Member), held that the State Tax Department is entitled to the status of a "secured creditor" under the Insolvency and Bankruptcy Code, 2016 (IBC) by virtue of the statutory charge created under Section 48 of the Gujarat Value Added Tax (GVAT) Act. The Tribunal set aside the resolution plan approved by the Adjudicating Authority, finding it to be in contravention of the Supreme Court’s ruling in State Tax Officer v. Rainbow Papers Ltd [(2022) SCC OnLine SC 1162]
Background
The appeal arose from the insolvency resolution proceedings of M/s Twenty First Century Castings Pvt. Ltd., initiated on a petition filed under Section 9 of the IBC by M/s Harsh Foundry Fluxes & Alloys. The application was admitted on 16.01.2020 and Mr. Saurabh Zaveri was appointed as Interim Resolution Professional (IRP). Subsequently, on the application of the Committee of Creditors (CoC), Mr. Premraj Ramratan Laddha was appointed as Resolution Professional (RP).
M/s Suryadeep Alloys Steel Casting Pvt. Ltd. submitted the sole resolution plan, which was approved unanimously by the CoC on 28.08.2020. The plan was thereafter approved by the Adjudicating Authority on 09.12.2020 under Section 31 of the IBC.
Aggrieved by the resolution plan’s failure to allocate any amount towards the admitted claim of ₹11.70 crores, the State Tax Officer, Gujarat filed the present appeal under Section 61 of the IBC. It was the State's case that a statutory charge had been created over the Corporate Debtor’s (CD's) assets pursuant to assessments made under the GVAT and CST Acts, and that it was entitled to be treated as a secured creditor under Section 53 of the IBC.
Arguments
The appellant argued that the tax dues arising from assessments for AYs 2009–11 and 2014–16, which were upheld in appeal in 2019, had created a charge on the Corporate Debtor's property by operation of law under Section 48 of the GVAT Act. Reliance was placed on the Supreme Court's judgment in State Tax Officer v. Rainbow Papers Ltd., which held that such statutory charges confer the status of a secured creditor on the State.
The appellant further contended that the RP’s failure to consider this charge, and classify the State as a secured creditor, rendered the resolution plan non-compliant with the statutory scheme of the IBC.
The respondents, including the RP and the resolution applicant, opposed the appeal by arguing that the appellant had submitted its claim in Form B as an operational creditor and that government dues do not qualify as secured debt unless backed by a registered security interest. They also argued that the wisdom of the CoC in approving the plan with full majority must be respected, citing decisions such as Essar Steel India Ltd [(2019) 2 SCC 1], Pratap Technocrats [2021 SCC OnLine SC 661], K. Sashidhar [2019 SCC OnLine SC 257].
Tribunal's Observations
The Tribunal rejected the respondents’ submissions and emphasized that the key question was whether the tax dues, backed by the charge created under Section 48 of the GVAT Act, qualified the State as a secured creditor under Section 53 of the IBC.
Relying heavily on the Supreme Court’s authoritative ruling in Rainbow Papers, the Tribunal observed that Section 48 of the GVAT Act creates a first charge on the property of the dealer or person liable to pay tax. It further noted that the IBC does not exclude government or statutory authorities from the definition of a "secured creditor," and that security interests created by operation of law are recognized under Section 3(30) read with Section 3(31) of the Code.
The NCLAT specifically emphasized paragraph 55 of the Rainbow Papers judgment, where the Supreme Court held that Section 53 of the IBC does not override Section 48 of the GVAT Act, and that the State qualifies as a secured creditor in such circumstances.
It also rejected the contention that the decision in Paschimanchal Vidyut Vitran Nigam Ltd. v. Raman Ispat Pvt. Ltd [ (2023) 10 SCC 60] overrules Rainbow Papers, holding that the latter remains binding law not yet overturned by the Supreme Court.
The Tribunal further dismissed the argument that the appellant’s late filing of the claim or classification in Form B as an operational creditor had any bearing in law. It observed that these procedural aspects cannot override the substantive legal status conferred upon the State under Section 48 of the GVAT Act.
Findings and Decision
The NCLAT found that the total admitted claims in the CIRP stood at ₹37.95 crores, whereas the resolution plan proposed a payment of only ₹4 crores—of which ₹3.9 crores was allocated to secured financial creditors and nil provision was made for the State’s dues. This, according to the Tribunal, amounted to a material irregularity and a clear violation of the statutory mandate of Section 30(2) read with Section 53 of the IBC. It concluded that the State was entitled to be treated as a secured creditor, and that the resolution plan failed to conform to the statutory framework laid down by the IBC and interpreted by the Supreme Court in Rainbow Papers.
Accordingly, the NCLAT allowed the appeal, set aside the approval of the resolution plan dated 09.12.2020, and remanded the matter to the Adjudicating Authority for fresh consideration. The Tribunal directed that the appellant's secured creditor status be appropriately recognized in accordance with Section 53 of the Code.
Appearance
For Appellant: Ms. Ritu Guru, Advocate.
For Respondents: Mr. Sunil Beniwal, Mr. Rajendra Beniwal, Advocates for R-1/RP. Mr. Ashkrit Tiwari, Advocate for R-3
Cause Title: State Tax Officer V. Premraj Ramratan Laddha & Ors.
Case No: Comp. App. (AT) (Ins) No. 720 of 2021 & I.A. No. 3172 of 2024
Coram: Justice Rakesh Kumar Jain [Member (Judicial)], Naresh Salecha [Member (Technical)]
[Read/Download order]
