Definition of secured creditor in IBC does not exclude Government or Governmental Authority – Supreme Court
ABCAUS Case Law Citation
ABCAUS 3610 (2022) (09) SC
Important Case Laws relied upon by parties
Swiss Ribbons (P) Ltd. v. Union of India
Vishal Saxena & Anr. vs. Swami Deen Gupta Resolution Professional
Assistant Commissioner of Customs v. Mathur Sabhapathy Vishwanathan
Ghanshyam Mishra & Sons (P) Ltd. v. Edelweiss Asset Reconstruction Co. Ltd.
An appeal was filed by the State Government (the appellant) against a judgment passed by the National Company Law Appellate Tribunal (NCLAT) 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, (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.
Thus, the question before the Hon’ble Supreme Court was whether the provisions of the Insolvency and Bankruptcy Code, 2016 (IBC) and, in particular, Section 53 thereof, overrides Section 48 of the GVAT Act?
The appellant had filed a claim before the RP claiming dues payable by the respondent company to the State, towards its dues under the GVAT Act. The claim was filed beyond time.
However, the Resolution Professional informed the appellant that the entire claim of the appellant had been waived off. The appellant challenged the Resolution Plan by making an application before the NCLT contending that Government dues could not be waived off.
However, the NCLT rejected the application made by the appellant as not maintainable. The NCLAT also dismissed the appeal.
The Hon’ble Supreme Court observed that regulation 12(2) as amended provides that a creditor shall submit claim with proof on or before the last date mentioned in the public announcement. The Hon’ble Supreme Court went on to observe that it has held that the time lines stipulated in the IBC even for completion of proceedings are directory and not mandatory.
The Hon’ble Supreme Court stated that there was no obligation on the part of the State to lodge a claim in respect of dues which are statutory dues for which recovery proceedings have also been initiated. The appellants were never called upon to produce materials in connection with the claim raised by the Appellants towards statutory dues. The Adjudicating Authority as well as the Appellate Authority/NCLAT misconstrued the Regulations.
The ppp concurred with the Solicitor General in that in view of the statutory charge in terms of Section 48 of the GVAT Act, the claim of the Tax Department of the State, squarely falls within the definition of “Security Interest” under Section 3(31) of the IBC and the State becomes a secured creditor under Section 3(30) of the Code.
The Hon’ble Supreme Court stated that if a Resolution Plan is ex facie not in conformity with law and/or the provisions of IBC and/or the Rules and Regulations framed thereunder, the Resolution would have to be rejected. It is also a well settled principle of interpretation that the expression “may”, if circumstances so demand can be construed as “Shall”.
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 Hon’ble Supreme Court said that if a company is unable to pay its debts, which should include its statutory dues to the Government and/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 in Section 53 of the IBC.
The Hon’ble Supreme Court opined that the NCLAT erred in its observation that Section 53 of the IBC over-rides Section 48 of the GVAT Act. Section 53 of the IBC begins with a non-obstante clause and 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 Hon’ble Supreme Court observed that the State is a secured creditor under the GVAT Act. 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.
It was held that NCLAT and NCLAT erred in law in rejecting the application/appeal of the appellant. Delay in filing a claim cannot be the sole ground for rejecting the claim. The appeals was allowed and the impugned orders was set aside.
Download Full Judgment Click Here >>
- CBDT extends due date for filing audit reports for Assessment Year 2022-23 to 07.10.2022
- UCO Bank Concurrent Auditor Online Empanelment 2022-23 (01.10.2022 to 30.09.2023
- Amendments to Companies (Corporate Social Responsibility Policy) Rules 2014
- CBDT notifies modified return of income to be furnished by a successor entity u/s 170A
- MCA increase capital and turnover threshold for small companies