Jaykumar Pesumal Arlani vs State Tax Department

a)

allow the present application;

b)

allow and direct for the dissolution of the Corporate Debtor under Section 54 of the Insolvency and Bankruptcy Code, 2016;

c)

allow and direct for relieving of Applicant from his position and duty as the Liquidator of the Corporate Debtor;

d)

direct the Registrar of Companies to reflect the status of the Corporate Debtor as dissolved in the MCA, Master Data for the information of stakeholders at large;

e)

condone the delay of six days observed in filing of the present application;

f)

pass such other necessary order(s)/direction(s) as this Hon’ble Tribunal may deem fit and proper.

(a)

In this connection, it is submitted that the details of Outstanding dues, pending proceedings and objections pertaining to M/s. Shree Raghuvanshi Fibers Private Limited (PAN: AALCS1333C) are as below:

Sr No.	AY	Demand Section	Date of Order	Demand Outstanding	Amount Collectible

				(in Rs.)	(in Rs.)
1.	2014-15	144	23/12/2017	2,76,61,950/-	2,76,61,950/-
2.	2014-15	271G	12/10/2017	92,11,674/-	92,11,674/-

(b)

As outstanding demands are due, departmental NOC cannot be granted for the above referred NCLT matter.

(a)

It is submitted that the petitioner herein, Manishbhai Bhagabhai Ahir had filed a company petition under Section 9 of the IBC Act, before the Adjudicating Authority for initiation of Corporate Insolvency Resolution Process against the C.D., Shri Raghuvanshi Fibers Private Limited for the operational debts due.

(b)

It would be pertinent to note here that, in the seventh COC meeting, the contentions and submissions raised by the State Tax officer is not at all been considered by the liquidator. The liquidator was of the view that they cannot wait more for the decision to be rendered by the Apex court in the Rainbow Paper judgment. Further he said that the time limitation to file the dissolution application is to be done at the earliest therefore no additional time can be given to the State Tax Officer or the department. Copy of the seventh COC meeting is marked hereto as ANNEXURE-C.

(c)

It is would be pertinent to note here that, the liquidator has failed to consider the State Tax Department as a secured creditor in view of the section 48, on a plain reading of section 48 of the Gujarat Value Added Tax Act 2003, which states that the said section provides that:

"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 may be, such person".

The Section on a plain reading creates a charge over the property of a dealer or person towards his liability to pay tax, penalty or interest by operation of law. The term charge has been defined in Section 3 (4) of the Insolvency and Bankruptcy Code, 2016, the read as under;

(4)

"Charge" means an interest or lien created on the property or assets of any person or any of its undertakings of both, as the case may be, as security and includes mortgage.

Further, the term charge is expressly included in the definition of security interest. As per Section 30 and 31 of the Insolvency and Bankruptcy Code, 2016, secured creditor and security interest has been defined as follows:

(30)

"secured creditor" means a creditor in favor of whom security interest is created;

(31)

"Security interest" means right, title or interest or a claim to a property created in favour of, or provided for creditor by a secured transaction which secures payment or performance of an obligation and includes Mortgage, charge, hypothetically and/or any other agreement or arrangement securing payment or performance of any obligation of any person.

(d)

That, on 18-02-2020, this Adjudicating Authority had appointed Shri Divyang Pareshray Majmudar as the Insolvency Resolution Professional. The IRP had made public announcement of initiation of CIRP of the Corporate Debtor on 03.03.2020. The IRP Mr. Divyang Majmudar had filed an application before the Tribunal vide IA No.276 of 2020 in CP (IB) No. 563 of 2019 for allowing him to resign as IRP of the Corporate debtor. That, on 22.06.2021, an order was passed in IA No.398 of 2021 wherein the adjudicating authority had observed that as the earlier IRP was not well due to his ill health, and that the CIRP procedure is a time bound process therefore, the authority had appointed Mr. Jaykumar Keshumal Arlani as new IRP. Thereafter, the new IRP Mr. Jay Kumar Arlani has been appointed as the IRP in the present case. The Committee of Creditors (COC) was constituted by the IRP on 10.07.2021 with Bank of Baroda as sole member of the Committee of Creditor. The IRP had informed the COC that the company is not going concern, therefore, further it was discussed and upon coming to a conclusion, the COC did not have any objection, if the company goes under liquidation. It was found that there are no running units of the corporate debtor and also no claims have been received from any past employees or workmen. After having detailed discussion, the IRP took the approval of COC for proceeding with filing an application for liquidation which was duly approved by the COC by casting 100% votes on the same. Therefore, on 30.08.2022, this Hon'ble Bench passed an order of liquidation of the corporate debtor.

(e)

Pursuant to the order of liquidation, the liquidator issued a public notice, wherein he had called for the submission of claims and the last date to submit the claims was 29.09.2022.

(f)

That on 14.09.2022, the State Tax Officer-3, Unit 94 of Gondal, registered its claim before the liquidator. Copy of the affidavit as well as the Form-"C" submitted by the State Tax Department is annexed as Annexure-F.

(g)

It would be pertinent to note that on 07.07.2021, the State Tax Department submitted Form "B" as a secured creditor for Rs. 36,87,64,745/- before the IRP Mr. Jay Kumar Arlani. The said claim of the State Tax Department was being admitted by the RP on 20.07.2021, The RP admitted the claim of Rs. 31,95,66,945/-. A copy of Form "B" along with the affidavit submitted before the RP and the mail correspondence of the RP informing the State Tax Officer that the claim of the Sales Tax State Department is being admitted is marked hereto as Annexure-G (Colly.).

(h)

That on 10.03.2022, a query has been raised by the liquidator to the State Tax Officer that how the interest rate is being calculated on the CD and under what provisions of IBC, the liquidator should consider the department as a secured creditor? Pursuant to the query raised by the liquidator, the advocate on record for the State Tax Department, Mr. Maulik Nanavati had replied on 08.10.2022 through mail and had clarified stating in detail all the facts that how the State Tax Department is considered a secured creditor and how the interest rate is being calculated. A copy of the query of the liquidator dated 03.10.2022 and reply dated 08.10.2022 are marked hereto as ANNEXURE-H.

(i)

It is submitted that on 14.09.2022, the respondent State Tax Department wrote a letter to the liquidator stating that the dues of Shri Raghuvanshi Fiber Private Limited pending tax liability is Rs. 43,45,22,22,907-00 towards the Commercial Tax Department and as per Section 48 of the Gujarat Value Added Tax 2003, they are submitting their Form-C under IBC and that they should be consid-ered as Secured Creditor. A copy of the letter dated 14.09.2022 along with the documents showing the tabular chart of the pending recovery tax is marked hereto and annexed as ANNEXURE-I.

(j)

That on 28.10.2022, the liquidator informs the advocate for the department as well as the State Tax Officer that they have accepted the claim of the State Tax Department for Rs.36,05,00,227/- and an amount of interest Rs.7,40,22,680/- is rejected as the same is calculated on the interest in penalty amount. Copy of the mail dated 28.10.2022 and the calculation sheet are annexed hereto as ANNEXURE-J.

(k)

That 03.03.2023, once again the State Tax Department has addressed a letter to the liquidator stating that the CDs liquidation process has been initiated. But after having the demand of rectification order for the year 2017-18, an order has been passed on 04.01.2023 for a demand amount of Rs.1,72,83,856/- and the same is being raised against the CD and the said demand notice is being issued to them and with this new demand, they are raising it in Form "C" and that may be considered by the liquidator. A copy of the letter 03.03.2023 along with Form "C" are marked hereto and Annexed as ANNEXURE-K.

(l)

That, on 07.03.2023, the liquidator had addressed a mail to the concerned State Tax Officer stating that they have no authority to accept the revision of the claim at this stage, as the last date of the receipt and acceptance of the claim is over long ago. A copy of the mail dated 07.03.2023 is marked hereto and annexed as ANNEXURE-L.

(m)

It is further submitted that on 20.04.2023, the liquidator had sought an opinion from advocate, Davawala whether to consider the State Tax Department as secured creditor or not. Copy of the opinion of advocate Davawala dated 20.04.2023 is marked hereto as ANNEXURE-M.

(n)

It is submitted that in the 6^th COC meeting took place on 21.04.2023, whereupon the State Tax Officer had remained present, and he had requested for some time from the quorum for considering the case of the State Tax Department, as secured creditor, as the Review petition of Rainbow paper judgment was pending, which was subjudice before the Apex Court. If we peruse the COC meetings, it has been stated by the liquidator that he had informed the stakeholders that it was prudent for him to go for a legal opinion regarding the distribution of the proceeds under Section 53. So he took a legal opinion from advocate, Mr. Monaal Davawala and he informed that he has already shared the copy of the opinion along with the notice of the meeting, wherein the opinion of the advocate was that in light of the fact was "divergent views have been taken by the Honorable Supreme Court in different matters, and the review petition in rainbow papers has been accepted as discussed herein a below, it may be prudent for the queries to take an undertaking from Bank of Baroda to the effect that in case of any change of law from its current position, the amount payable to the Assistant Sales Tax Commissioner from the proceeds of the auction would be returned to the liquidation account and distributed in accordance with law". The State Tax Officer, as per his knowledge, had stated that the State Tax Department should have the first charge and had requested the COC members that some further discussions are to be taken up therefore, sometime may be given. That, on 21.04.2023, when the 6^th COC meeting had taken place, on that day itself, the Bank of Baroda had given an undertaking to the liquidator, stating the fact that they assure that if the NCLT or Tribunal takes a view regarding priority of payment to various stakeholders or there is any change in law from its current position, then they shall return the money payable to the Assistant Tax Commissioner or any stakeholder received by them under the liquidation process. Copy of the 6^th meeting and the undertaking given by the Bank of Baroda authorized signatory to the liquidator dated 21.04.2023 is annexed hereto as ANNEX-URE-N.

(o)

Further, the liquidator has clearly erred in its observation that Section 53 of the IBC override Section 48 of G-VAT Act but Section 53 of the IBC begins with a non-abstained clause which reads not "notwithstanding anything to the contrary contained in any law enacted by the parliament or any state legislature for the time being enforced, the proceeds from the sale of the liquidation is it shall be distributed in the following order of priority..." Section 48 of the G-VAT 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 G-VAT Act, are to rank equally with other specified debts including debts on account of workman's due for a period of 24 months preceding the liquidation commencement date.

(p)

Further, the State is a secured creditor under the G-VAT Act. Section 3(30) of the IBC defines secured creditor to means a creditor in favor of whom security interest is credited. Such security interest could be credited by operational of law. The definition of secured creditor in the IBC does not exclude any government or governmental authority. Further the rate of 18% which is been fixed by the statute is not at all considered by the liquidator. As per section 42 (7) the Gujarat Value Added Tax Act 2003 interest has to be levied at the rate of 18% per annum in case of non-payment of tax. The relevant extract of Section 42 of the Gujarat Value Tax reproduced here in below for the reference;

"42. Payment and recovery of tax and interest on de- layed payment:

(1)

The amount of tax assessed, reassessed or becoming payable for any period under section 32, 33, 34, 35, 75 or 79, less any amount already paid by the dealer in respect of such period, shall together with penalty and interest if any that may become payable under any of the provisions of this Act, be paid by the dealer or the person liable therefore into a Government treasury or in such other manner as may be prescribed within thirty days from the date of service of notice of demand issued by the Commissioner for this purpose.

(2)...

(3)...

(4)...

(5)...

(6)...

(7)

Where a dealer does not pay the amount of tax falling under sub-section (1) on or before the prescribed date, then that shall be paid by such dealer for the period commencing on the specified date and ending on the date payment, simple interest at the rate of eighteen per cent per annum on the amount of tax not so paid or any less amount thereof remaining unpaid during such period;

Provided that where security, other than in the form of surety bond, has been furnished by a dealer under sub-sections (1) and (2) of section 28, the Commissioner may, for good and sufficient reasons to be recorded in writing, realize any amount of tax, penalty or interest remaining unpaid as aforesaid or part thereof by ordering forfeiture of the whole or any part of the security.

(a)

It is submitted that on 30/07/2019, the State Tax Officer-3, Unit-94, Gondal had addressed a letter to the Manager Bank of Baroda, Collage Chowk, Gondal with regard to the Account No. 0008110100002001 of Shri Raghuvanshi Fibers Private Limited and stated that the State Tax Department had to recover Rs.1,04,62,692/- plus interest from Shri Raghuvanshi Fibers Private Limited and, therefore, the Bank Account of the Corporate Debtor shall be sized or attached by the Bank. The attachment of the Bank Account is to be made with respect to Section 44 of the Gujarat Value Added Tax Act. That on 19/08/2019, the State Tax Officer-3, Unit-94, Gondal had addressed a letter to the manager Bank of Baroda Collage Chowk, Gondal, with regard to Account No. 0008110100002001 of Shri Raghuvanshi Fibers Private Limited and had informed that the Corporate Debtor's tax amount is due and to be recovered and, therefore, with respect to Section 44 of the Gujarat Value Added Tax Act, 2003 the department has a charge on the assets of the Corporate Debtor as well as charge on the Bank Accounts. In view of the Section 44 of the GVAT Act, the bank may seize/attach the account of the Corporate Debtor. The bank statement is also attached herewith which reflect that the Corporate Debtor has only Rs.4,133/- in his account. Copy of the letter dated 30/07/2019 along with the bank statement and letter dated 19/08/2019 is marked hereto and annexed as Annexure-R2 Colly.

(b)

It is submitted that the State Tax Officer on 05/09/2019 had addressed a letter to the Mamlatdar (Rural) Gondal to take charge /attachment of the Corporate Debtors property on the property of the corporate debtor. In the said letter it is been stated that for the year 2014-15 under the GVAT Act, assessment orders are passed and the corporate debtor has not paid the tax and therefore, the corporate debtor has to pay the tax amount to the tune of Rs.1,04,62,692/- to the State Tax Department. Therefore, as the company has made no payment against the tax recovery, it is been informed to the Mamlatdar that the property which is reflecting in the extract form of 7/12 in the revenue record, Survey No.28/2 Paiki 1 of the agriculture land of Biliyada and Survey No.418 of Rajkot may be attached by the Mamlatdar and may create a charge on the property on behalf of the State Tax Department. Copy of the letter dated 05/09/2019 is marked here to and annexed as Annexure R3.

(c)

It is submitted that on 15/02/2021, the department had addressed a letter to the manager of the co-operative bank of Rajkot Ltd. Gondal, stating the fact that under Section 44 of the GVAT Act, that the corporate debtor i.e. Shri Raghuvanshi Fibers Pvt. Ltd. has to pay tax and the department has to recover Rs.23,09,92,216/- plus interest, therefore, the bank account which the Co-operative Bank of Rajkot Ltd. is holding in the name of Shri Raghuvanshi Fibers Pvt. Ltd. may be attached, (seized). That on 06/07/2021 the Co-operative Bank of Rajkot branch, In-charge manager of Gondal branch has addressed a letter to the Commercial Tax Officer-3, Unit-94, Gondal, with respect to the notice given under Section 44 of the Gujarat Value Added Tax Act, 2003, that they would like to bring into the notice of the Government Authority that their bank is holding Account No. 0008110100002001 of Shri Raghuvanshi Fibers Pvt. Ltd. and the said account holder has a balance of Rs.32,307.02/-. After keeping the minimum balance requirement they are sending a demand draft of Rs.29,307/-, DD No.240580 drawn in favour of the State Tax Officer-3, Unit-94, Gondal. Copy of the letter dated 15/02/2021 and 06/07/2021 is marked and annexed hereto as Annexure R4.

(d)

It is submitted that on 16/05/2024, the State Tax Officer addressed a letter to the Mamlatdar stating that the corporate debtor's matter is pending before the NCLT Court, Ahmedabad Bench and, therefore, they would like to know the current status of the properties attachment made by the Mamlatdar in view of the letter dated 05/09/2019. Copy of the letter dated 16/05/2024 is marked hereto and annexed as Annexure R5. On 20/05/2024, the Mamlatdar of the Gondal Taluka addressed a letter to the State Tax Officer-3, Unit-94, Gondal stating the fact that with reference to the letter dated 05/09/2019 and 16/05/2024 we would like to inform you that from the record that the property of the Corporate Debtor having Survey No.28/2, Paiki 1 at Biliyada Rajkot property there is no attachment or charge been made on the said property. Therefore, kindly consider the above note. Copy of the letter dated 20/05/2024 is marked hereto and annexed as Annexure R6.

(e)

It is submitted that in advertently the Mamlatdar has failed to make an entry in the Revenue record, the attachment/charge under the GVAT Act of the State Tax Department of the Corporate Debtor's property. Therefore, it is submitted that merely, if there is no attachment on the property of the Corporate Debtor it does not take away the right of the State Tax Department of recovering the tax amount which is a statutory due under the IBC. Further, the facts have to be appreciated that the company under liquidation has failed to pay tax for the year 2014-15, 2015-16, 2016-17, 2017-18 assessment years. The Corporate Debtor is liable to pay tax along with interest at the rate prescribed in the statute. The Corporate Debtor has not challenged the said Assessment orders passed by the department neither before the higher Authority. Therefore, the orders have attained finality which has been passed by the quasi-judicial Authority and the quasi-judicial orders are binding on the corporate debtor. Similarly, the Appellate Authority and the Tribunal are quasi-judicial authorities, and their orders are legally regarded as quasi-judicial orders. Orders passed by the competent quasi-judicial authority under the relevant statute are enforceable in law. They bind the parties in much the same way and manner as the orders passed by the National Company Law Tribunal or the National Company Law Appellate Tribunal, both of which are quasi-judicial authorities appointed under the Insolvency and Bankruptcy Code, 2016.

(f)

In view of the proviso under the liquidation process (Regulations) the liquidator had to appreciate that- 12 (2) (c) where a stake holder does not submit its claim during liquidation process the claim submitted by such a stake holder and duly collated by the interim resolution professional or resolution professional has the case may be, during the corporate insolvency resolution process under the insolvency and bankruptcy board of India (Insolvency resolution process for corporate persons) regulation 2016 shall be deemed to be submitted under Section 38.

a)

It is true that the Regulation 12 (2) after amendment has granted liberty to a creditor who has failed to submit the claim with the proof within the time stipulated in the public announcement and such a claimant could submit the claim with proof to the IRP/RP on or before 90^th day of Insolvency commencement date. The aforesaid time obviously has expired as the CIRP process and in the present matter it was commenced on 16/03/2018 and the claim were initially invited by fixing the last date as 30/03/2018. It is strange situation which is adopted by the RP because in the books of account the governmental dues are always reflected. It is nowhere stated as to how the claims which are to be filed alone are to be collated in terms of section 21. First of all, as a matter of fact as the first step the IRP/RP has to prepare the list in accordance with the books of accounts and then invite the claims otherwise the dues reflected in the books of accounts would be rendered completely meaningless. It is only in case there is any discrepancy in the books of account that the claims need to be modified or additions are required to be made.

b)

Therefore, we allow the application and direct the IRP/RP to collate the claim of the CGST the needful shall be done within 3 days."

20.3

It is pertinent to mention that all the assessment order were passed before the declaration of the moratorium. Therefore, it has attained finality in the absence of any challenge against the assessment order before the appellate authority as provided under the statutes.

20.4

It is also important to mention that the GST amount is an amount of tax levied under the assessment order as per the Goods and Service Act, 2017. It cannot be edited or reduced by the resolution professional himself even if the IRP/RP was aggrieved by the said order, they should have filed the appeal under Section 107 of the CGST/SGST Act, 2017 read with rule 108 of the GST rules 2017.

Any revision of assessment orders also cannot be made under the pretext of section 238 of IBC. Section 238 of IBC cannot be read as conferring any appellate or adjudicatory jurisdiction in respect of issues arising under other statutes.

20.10

Undisputedly, the IRP/RP has revised the admitted claim of the respondent based on the circumstances stated above. The above exercise of revision of the GST assessment order was beyond the jurisdiction of the IRP/RP. It is pertinent to mention that the IRP/RP was not having the adjudicatory power given by the GST Act. Regulation 14 of the CIRP regulations only authorizes the IRP/RP to exercise power where the claim is not récises due to any contingency or other reasons. It is pertinent to mention that Hon'ble Supreme Court in the case of Embassy Property Developers Pvt. Ltd. has held that section 60 (5) of the IBC, 2016 is very broad in its sweep, in that it speaks about any question of law or fact, arising out of or in relation to Insolvency Resolution. But the decision taken by the Government or statutory authority in relation to the matter which is in the realm of public law, cannot be brought within the hold on the phrase “arising out of or in relation to the insolvency resolution” appeal in Section 60 (5) (c) of the code.

21 However, in the instant case the adjudicating authority has rightly considered the statutory provision and suggested filing an appeal before the appropriate forum. But at the same time the resolution professionals, considering the COC as an authority in law, had exercised the powers of GST authority. Therefore, the said act of the resolution professional is without jurisdiction and not sustainable in law.

(a)

It is stated that the ratio of judgment of the Hon’ble Supreme Court in the matter of, State Tax Officer Vs. Rainbow Papers Limited; Civil Appeal No. 1661 of 2020 would not be applicable in the instant case for the below stated reasons.

(b)

Firstly, the State Tax Department was not having valid and existing charge over the assets of the Corporate Debtor as on the date of initiation of the CIRP and liquidation. Instead, vide Letter dated 07.07.2021 (Ref: Page No. 40 of the Department's Affidavit dt.28.02.2024), the Department asked the Deponent to create charge in their favour thereby proving that no charge did exist at the time of commencement of the CIRP proceedings. In the claim form filed during the CIRP which is at Page No. 42 of the Department's Affidavit dt.28.02.2024, "NA" has been mentioned in column no. 9 titled "Details of any security held". Further, during the liquidation also, vide communiqué dated 14.09.2022, the State Tax Department asked the Liquidator to create a charge in their favour (Ref: Page No. 53 of the Department's Affidavit dated 28.02.2024). In the claim form filed with the Liquidator also, no security interest was mentioned by the State Tax Department (Ref: Page No. 55 of the Department's Affidavit dt.28.02.2024). In the affidavit dated 14.09.2022(which is after Rainbow rulings) filed along with the claim form, in Para (4) no security interest was mentioned. The Liquidator vide email dated 03.10.2022 (attached as Annexure A to this Affidavit) has categorically stated that he cannot create any charge in favor of State Tax Department and he further called upon the Department to prove their security interest. Later, vide Letter dated 03.03.2023 also, (Ref: Page No. 104 of the Department's Affidavit dt.28.02.2024) the Department requested the Liquidator to register the charge of the Department over the properties of the Corporate Debtor.

(c)

It is stated that, in the Department earlier Affidavit dated 13.06.2024, in Para (6) and (7), the Department has fairly admitted that the concerned Mamlatdar has not created any charge in favour of the State Tax Department and the Department has not taken any action against the said act of Mamlatdar.

(d)

In other words, at the time of commencement of the liquidation process, no attachment or charge was in existence thereby the Department cannot claim its rights as secured creditors.

(e)

It is stated that under Regulation 21 of the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016, the security interest has to be proved basis the records available in an information utility; certificate of registration of charge issued by the Registrar of Companies, or proof of registration of charge with the Central Registry of Securitization Asset Reconstruction and Security Interest of India. In the present case, it is not the case of the State Tax Department that their attachment or charge was registered with any of such authority. Under such case also, no valid security interest can be stated to have been created in the favor of Department.

(f)

Further, Section 77(3) of the Companies Act, 2013 expressly provides that no charge shall be taken into account by a Liquidator unless it is duly registered with the Registrar of Companies and a certificate of charge is issued by the concerned Registrar of Companies. The section sub-section read as follows:

77(3) Notwithstanding anything contained in any other law for the time being in force, no charge created by a company shall be taken into account by the liquidator appointed under this Act or the Insolvency and Bankruptcy Code, 2016 (31 of 2016), as the case may be, or any other creditor unless it is duly registered under sub-section (1) and a certificate of registration of such charge is given by the Registrar under sub-section (2).

(g)

In the matter of "Volkswagen Finance Private Limited Vs. Shree Balaji Printopack Pvt. Ltd & Ors.-Company Appeal (AT) (Insolvency) No. 02 of 2020', the Hon'ble NCLAT denied to afford the Appellant status as Secured Creditor in the liquidation proceedings since its charge was not registered under section 77 of the Companies Act, 2013 or any other mode prescribed under Regulation 21 of the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016. Though the said order was taken to the appeal but no stay has been by the Hon'ble Supreme Court to the best of the knowledge of the Deponent.

47.

In Ebix Singapore Private Limited v. Committee of Creditors of Educomp Solutions Limited and Another, this Court affirmed that Resolution Plans would have to conform to the statutory provisions of the IBC, and held :-

“147.

In terms of Regulation 39(4), the RP shall endeavor to submit the resolution plan approved by the CoC before the adjudicating authority for its approval under Section 31 IBC, at least fifteen days before the maximum period for completion of CIRP. Section 31(1) provides that the adjudicating authority shall approve the resolution plan if it is satisfied that it complies with the requirements set out under Section 30(2) IBC. Essentially, the adjudicating authority functions as a check on the role of the RP to ensure compliance with Section 30(2) IBC and satisfies itself that the plan approved by the CoC can be effectively implemented as provided under the proviso to Section 31(1) IBC. Once the resolution plan is approved by the adjudicating authority, it becomes binding on the corporate debtor and its employees, members, creditors, guarantors and other stakeholders involved in the resolution plan...”

48.

A resolution plan which does not meet the requirements of Sub-Section (2) of Section 30 of the IBC, would be invalid and not binding on the Central Government, any State Government, any statutory or other authority, any financial creditor, or other creditor to whom a debt in respect of dues arising under any law for the time being in force is owed. Such a resolution plan would not bind the State when there are outstanding statutory dues of a Corporate Debtor.

49.

Rainbow Papers (supra) did not notice the 'waterfall mechanism' under Section 53 the provision had not been adverted to or extracted in the judgment. Furthermore, Rainbow Papers (supra) was in the context of a resolution process and not during liquidation. Section 53, as held earlier, enacts the waterfall mechanism providing for the hierarchy or priority of claims of various classes of creditors. The careful design of Section 53 locates amounts payable to secured creditors and workmen at the second place, after the costs and expenses of the liquidator payable during the liquidation proceedings. However, the dues payable to the government are placed much below those of secured creditors and even unsecured and operational creditors. This design was either not brought to the notice of the court in Rainbow Papers (supra) or was missed altogether. In any event, the judgment has not taken note of the provisions of the IBC which treat the dues payable to secured creditors at a higher footing than dues payable to Central or State Government."

"53.

In view of the above discussion, it is held that the reliance on Rainbow Papers (supra) is of no avail to the appellant. In this court's view, that judgment has to be confined to the facts of that case alone."

"Given Section 238 of the Insolvency and Bankruptcy Code, 2016, it is obvious that the Code will override anything inconsistent contained in any other enactment, including the Income-Tax Act. We may also refer in this Connection to Dena Bank vs. Bhikhabhai Prabhudas Parekh and Co. & Ors. (2000) 5 SCC 694 and its progeny, making it clear that income-tax dues, being in the nature of Crown debts, do not take precedence even over secured creditors, who are private persons."

'4.19 Rationale: The Supreme Court in the matter of State Tax Officer Vs. Rainbow Papers Limited vide order dated September 06, 2022 held 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 created. 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 can then be extended that all dues emerging out of statutes such as EPF Act, tax laws, etc. which provide for attachment of property, may have to be considered as secured creditors. A careful reading of the definition of 'security interest' under the Code states that it is an interest created by way of a transaction and therefore there is an element of agreement on the part of asset holder while giving rights to the other party. This is missing in case of unilateral action by the Government authorities. Further, 'transaction' as defined under the Code clearly lays out that it includes an agreement or arrangement in writing for the transfer of assets, or funds, goods or services, from or to the CD. Thus, it is clear that the same is linked to a consensual transaction between the parties.

4.20

The departure from the definition of 'security interest' in SARFAESI Act and RDB Act is intentional. Besides, even there, by insertion of section 26E in SARFAESI Act and section 31B in RDB Act, security interest of the government has been placed at a lower footing that the security interest of the financial creditor. Further, the priority given to debts owed to Central and State Governments in section 53 is in line with the recommendation provided in the BLRC Report. The BLRC report provided for keeping the right of the Central and State Government in the distribution waterfall in liquidation at a priority below the unsecured FCs in addition to all kinds of secured creditors for promoting the availability of credit and developing a market for unsecured financing (including the development of bond markets). If the intent of the lawmakers (and thus, the construct of IBC) was to treat the government authorities at the same pedestal as secured creditors, then the purpose of having a separate rank for Government dues would not have been envisaged. The intention behind this is to give benefit of payment to other creditors who have taken risks while giving loans or providing debts”.

26.

After considering the Waterfall Mechanism as contemplated in Section 53 and other provisions of IBC for the purpose of deciding as to whether Section 53 IBC override Section 48 of the GVAT Act, it was finally concluded in the impugned order as under:-

“55.

In our considered view, the NCLAT clearly erred in its observed 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 which reads: - “Notwithstanding anything to the contrary contained in any law enacted by the Parliament or any state Legislature for the time being in force, the proceeds from the sale of the liquidation assets shall be distributed in the following order of priority.

56.

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.

57.

As observed above, 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 creditor. 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.”

48.

A resolution plan which does not meet the requirements of sub-section (2) of Section 30 of the IBC, would be invalid and not binding on the Central Government, any State Government, any statutory or other authority, any financial creditor, or other creditor to whom a debt in respect of dues arising under any law for the time being in force is owed. Such a resolution plan would not bind the state when there are outstanding statutory dues of a Corporate Debtor.

“(2)

Subject to the other provisions of this Act and the rules made thereunder, the authorities for the time being empowered to assess, re-assess, collect and enforce payment of any tax under general sales tax law of the appropriate state shall, on behalf of the Government of India, assess, re-assess, collect and enforce payment of tax, including any interest or penalty, payable by a dealer under this Act as if the tax or penalty payable by such a dealer under this Act is a tax or interest or penalty payable under the general sales tax law of the State and for this purpose they may exercise all or any of the powers they have under the general sale tax law of the State and the provisions of such law, including provisions relating to returns, provisional assessment, advance payment of tax, registration of the transferee of any business, imposition of the tax liability of a person carrying on business on the transferee of, or successor to, such business, transfer of liability of any firm or Hindu undivided family to pay tax in the event of the dissolution of such firm or partition of such family, recovery of tax from third parties, appeals, reviews, revisions, references, refunds, rebates, penalties, charging of interest, payment compounding of offences and treatment of documents furnished by a dealer as confidential, shall apply accordingly.

“26, Tax, penalty and interest to be first charge on property.

Notwithstanding anything to the contrary contained in any law, any amount of tax and penalty including Interest, if any, payable by a dealer or any other person under this Act shall be a first charge on the property of the dealer or such other person.”

'24. This provision is followed by Section 9(2) of the said Act (which is the relevant provision for consideration in the present case) providing for assessment re-assessment, collection and enforcement of payment of tax including interest or penalty payable by a dealer under the CST Act to be as if a tax, interest or penalty is payable under the general sales tax law of the State. Thus, for all ends and purposes, the mode of assessment, re-assessment, collection and enforcement of payment of tax mechanism provided under the State sales tax act would equally apply in the Central sales tax to be collected under the CST Act. Not only this, but also all or any of the powers as are exercisable under the general sales tax law of the State, are to be available for the recovery of the central sales tax.

26.

If the aforesaid scheme is appreciated in its true spirit and with the legislative enactment in mind (preamble to the CST Act itself stating that the Act was to formulate principles determining inter State trade or commerce and for levy and collection of taxes on sale of goods in the course of inter State trade or commerce), we have no doubt that not only assessment & re-assessment but also mode of recovery and principle of priority of claim as incorporated under Section 50 of the RST Act would be available for collection of Central sales tax within the State of Rajasthan in view of the provisions of Section 9 (2) of the CST Act.

27... We have come to a conclusion that such a charge stands created if meaning is to be given to the words "collection" and "enforcement" found in various provisions, more specifically Sections 9(1) and 9(3) of the CST Act read with the relevant provisions of Section 9(2) of the CST Act, coupled with the right of appropriation conferred in the States though the tax may be collected by the Central Government. Thus, the priority given under Section 50 of the RST Act to the recovery of local sales tax will apply with equal force to the recovery of Central sales tax qua inter- State trade or commerce."

(i)

That this Hon'ble Tribunal pass an order directing that the attachments on the assets of the Corporate Debtor, attached by Respondent Nos. 1 to 7, i.e. State Tax Department herein be raised/released;

(ii)

That, in the alternative to the above, this Hon'ble Tribunal pass an order directing Respondent Nos. 1 to 7 to raise/release the attachments on the assets of Corporate Debtor. The application is essentially prayed for declaration from the Adjudicating Authority that the attachment of properties of the Corporate Debtor made by the State Tax Department amongst other respondents in the application is bad in law and sought a direction for lifting of such attachment by the concerned statutory authorities or in the alternative freeing of the encumbered properties of the Corporate Debtor from such attachment made by the statutory authorities. It was contended on behalf of the liquidator, that the attachment on assets of the Corporate Debtor is illegal and in teeth of provisions of the Code. Reference was made in the memo of application to 35(1) (b) and 36 (2) of the Code and Regulations 32 and 34 of the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016. Reliance was also placed on decision of the Hon'ble Andra Pradesh High Court in the case of Leo Edibles & Fats Limited V/s Tax Recovery Officer (Central) Income Tax Department, Hyderabad & Ors. and decisions of this Hon'ble Appellate Tribunal in the case of SR Foils and Tissues Limited, REI Agro Limited. SREI Infrastructure Finance Limited and Aryarup Tourism Club Resorts Private Limited. A specific mention was made of Section 238 of the Code to contend that it has an overriding effect and that the provisions of the Code will prevail over the provisions of other enactments. Accepting the submissions raised by the Liquidator and relying upon the cited judicial decision, the Adjudicating Authority (National Company Law Tribunal, Mumbai) passed an order on 18.11.2019 in Miscellaneous Application No.2357 of 2019 in Company Petition (IB) No.1514 (MB)/2017 inter alia directing lifting of the attachment made by the department in exercise of powers under provisions of the Gujarat Value Added Tax Act, 2003. Copy of the Order Dated 18.11.2019 is marked hereto and annexed as ANNEXURE R2.

(a)

Email dated 12.11.2022 evidencing the constitution of the SCC as Annexure-A15.

(b)

Bank Account Statement as Annexure-A16 Colly evidencing opening of liquidation account and closure thereof.

(a)

It is stated that the company under liquidation has failed to pay tax for the assessment years for 2014-15, 2015-16, 2016-17, 2017-18. That the dues relate to a period much prior to the commencement of Insolvency proceedings against the corporate debtor and recovery proceedings had been initiated by the department in 2019 much before the commencement of Insolvency Resolution Process under the code. The corporate debtor has not challenged the said Assessment orders passed by the department neither before the higher Authority. Therefore, the orders have attained finality which has been passed by the Quasi-judicial Authority and the Quasi-judicial orders are binding on the corporate debtor. The Hon'ble NCLAT Chennai Bench has taken into consideration the above aspect in case of Bijoy Prabhakran Puilpra vs State Tax Officer in Company Appeal (AT)(CH)(INS)No. 42 of 2021.

(b)

It is stated that the liquidator was supposed to collect the claims based on record, if the liquidator had perused the records and book of accounts then it is ipso facto that the statutory dues are pending to be paid to the state tax department. The State Tax Department has created a charge in the year 2019 on the property of the corporate debtor by way of operation of law and the security interest thus is deemed to be relinquished under Section 21A of the (LIQUIDATION PROCESS) Regulations. Therefore, also the stand of the liquidator does not survive in view of the proviso that the state had not relinquished its security interest. In the 6^th COC meeting, it was discussed by the liquidator that whether the Bank of Baroda is ready to give undertaking that in case the law changes from its current position, the amount payable to the State Tax Department from the proceeds of the auction would be returned to the liquidation account to provide the same to the state tax office. The undertaking given by the Bank of Baroda has to be only considered by the liquidator (page 152 of the reply of the state). The liquidator in the present application has not brought this fact before the Hon'ble bench that the bank does not have any objection nor the bank is before this bench objecting the same. The liquidator has not complied with the proviso of section 35 of the Code. Therefore, in the present application the liquidator cannot object to the same and before pressing the present dissolution application the liquidator should have brought these facts to the notice of this court. Merely, only because no application is filed by the state for the claim before this court would not take away the rights of the state. This Hon'ble court had called upon the state to file objections in the present application, if any, in passing the dissolution application. The respondent state appeared and has filed 3 replies. This court may direct the liquidator to consider the state tax department as secured creditor and make the disbursement of amount accordingly with respect to section 53 of the Code.

(c)

It is stated that the Hon'ble High Court in case of Shree Radhekrushna Ginning and pressing Pvt Ltd. vide SCANo.5413 of 2022 has held that the day the assessment order is passed determining the liability of the corporate debtor under GVAT Act, a charge over the immovable properties of the corporate debtor could be said to have been created in favour of the state by way of operation of law as envisaged under section 48 of the GVAT Act. The liquidator has failed to consider the judgment of the Hon'ble Apex Court in case of Rainbow Papers Pvt Ltd. wherein the state has been considered as a secured creditor.

(d)

It is stated that the Hon'ble NCLT Mumbai Bench in case of IA.NO.2734 OF 2022 in CP IB NO. 1667 OF 2018 Assistant Commissioner of State Tax Vs CA Amir Gupta liquidator of Provogue Ltd has held that the dues arising under section 9(2) the CST Act, would also be considered as secured creditor as there is no embargo in the IBC which states that IBC will override the said act. Rather if we peruse the IBC from section 245 to section 255 various acts have been amended but CST Act has not been amended.

(e)

It is stated that the liquidator has failed to appreciate the replies filed by the State Tax Department in the present case citing judgments and legal grounds and submissions for considering the state as secured creditor and to disburse the said amount in favour of the state. The liquidator has considered the state as operational creditor without verifying the records and submissions made the concerned officer in the COC meetings. Therefore, this court may consider the submissions made by the Respondent/State Tax Officer to consider them as Secured Creditor and pass orders that the amount which is lying with the Bank of Baroda shall be disbursed as per the Section 52 and 53 of the Code.

(a)

On perusal of the said, it is noted that there are repetition of the Para Nos. 1 to 23 which are duly stated in the application and the brevity of the matter the same is considered and taken on record.

(b)

It is stated that so far as the objection of the Gujarat State Tax Department is concerned qua treatment of their claim as Secured Creditor, it is submitted as follows:

a. Hit by doctrine of delays and laches

Despite non-consideration of any charge by the Liquidator, the Gujarat State Tax Department has chosen not to challenge the said non-consideration by the Liquidator. Even till date, no application/appeal has been moved by the Gujarat State Tax Department to challenge the said decision. It is trite law that the law protects the vigilant not the condolent. After distribution of auction proceeds, no such application ought to be entertained.

Ref:

NCLAT ruling in “Amar Nath, Liquidator for Karan Processors Pvt. Ltd. Vs. Excise & Taxation

b. No security interest claimed in claim form

The claim form(s) submitted by the Gujarat State Tax Department nowhere claim the existence of any security interest. The Gujarat State Tax Department mentioned “NA” column no. 7 of the claim and has not mentioned any security in Para 3 to the Affidavit (Ref: Page No. 55, 56 of Affidavit dated 28.02.2024 filed by Gujarat State Tax Department)

Ref:

1.

NCLT, Chennai Bench-II ruling in, “Government of Tamil Nadu Vs. Chandra Mouli Ramasubramaniam – IA(IBC)864(CHE)2023

2.

NCLT, Ahmedabad Bench-I ruling in, “Uttar Gujarat Vij Company Limited Vs. Pradeepkumar Kabra – IA 883/2024

c. No charge exists in favour of the Gujarat State Tax Department

In the present case, the Mamlatdar has clearly stated that no charge exists over the properties of the CD in favour of the Gujarat State Tax Department. (Ref: Para 6, 7 on page no. 3, 4 of the Affidavit dated 13.06.2024 filed by the Gujarat State Tax)

Ref:

Hon'ble NCLT, Ahmedabad Bench-II ruling in “State Tax Officer (3) Vs. Bhupendrasingh Narayansingh Rajput – IA

d. No registration of charge under Section 77 of the Companies Act, 2013 and thus liable for non-consideration under Regulation 21 of the Liquidation Regulations, 2016

The purported charges of the Gujarat State Tax Department are not registered with the RoC under Section 77 of the Companies Act, 2013. Section 77 of the Companies Act, 2013 provides for non-consideration of the charge by the Liquidator appointed under the Code which is not registered with the RoC.

Further, Regulation 21 of the Liquidation Regulations, 2016 prescribes that the security interest can be proved basis the records of Information Utility; charge registered with RoC; or proof of registration with Central Registry of Securitization Asset Reconstruction and Security Interest of India. The purported charge of the Gujarat State Tax Department does not stand the test of Regulation 21.

Ref:

Hon'ble NCLT, Chennai Bench-II ruling in “Canara Bank Vs. Mr. S Rajendran – IA(IBC)887(CHE)/2022”

e. Effect of Paschimanchal Vidyut Vitran Nigam Ltd.

It is humbly submitted that the judgment of Paschimanchal Vidyut Vitran Nigam Ltd. (Supra) was passed in the case of liquidation while the judgment of Rainbow Papers (Supra) was passed while dealing with a resolution plan. It is trite law that a specific provision of law shall prevail over a general provision of law. Similarly, the judgment of Paschimanchal Vidyut Vitran Nigam Ltd. (Supra) being more specific for the cases of liquidation shall be considered in the present case.

(c)

It is further stated that the assets of the Corporate Debtor have been completely liquidated and the auction proceeds have been fully distributed and nothing remains in the Corporate Debtor.