State Tax Officer vs Nitin Narang RP Of M/s Afcan Impex Private Limited & Ors.

a. That this Hon'ble Tribunal may be pleased to allow the captioned application;

b. The Hon'ble Tribunal may be pleased to consider the claim of the Applicant as "Secured Creditor" and direct the Resolution Professional to consider and accept the whole claim of the applicant amounting to INR - 5,80,64,381/- (Five Crore Eighty Lakhs Sixty Four Thousand and Three Eighty One Rupees Only) under the GVAT Act, 2003 and the CST Act, 1956 as a Secured Creditor in the Resolution Plan.

c. The Hon'ble Tribunal may be pleased to consider and to direct the Resolution Professional to make the payment of the claim as it were to be made as per section 53(1)(b)(ii) of the Code accordingly.

d. That the Hon'ble Tribunal may be pleased to condone the delay in filing the present application.

e. Pass any further order(s) as the Hon'ble Tribunal may deem fit.

i.

The background of the case is straightforward. On 17 February 2021, this Hon'ble Tribunal admitted a petition filed by Bank of Maharashtra under Section 7 of the Insolvency and Bankruptcy Code, 2016, against the Corporate Debtor, M/s Afcan Impex Private Limited. Along with the admission, a moratorium under Section 14 was imposed, and the Respondent, Mr. Nitin Narang, was appointed as the Interim Resolution Professional (IRP). The Tribunal's order was detailed — it directed that no suits or recovery actions could be continued against the Corporate Debtor, no assets could be attached or alienated, and even attachments under SARFAESI or tax laws were prohibited. The order also required the IRP to take charge, preserve the Corporate Debtor as a going concern, make a public announcement, invite claims, and run the CIRP in accordance with law.

ii.

Acting strictly in line with the order, the Respondent issued a public announcement on 23 February 2021 in Financial Express (English and Gujarati editions), inviting claims from creditors with a deadline of 8 March 2021. This announcement was also uploaded on the IBBI website. Several creditors filed their claims, which were verified, and based on these, the Committee of Creditors (CoC) was formally constituted.

iii.

Once the CoC was in place, the Respondent issued Form-G to invite resolution plans. Multiple prospective applicants submitted their plans, which were carefully reviewed in meetings of the CoC. Finally, in the 7th CoC meeting, after full deliberation, the CoC unanimously approved the resolution plan of Mr. Naresh Sevantilal Shah with 100% voting share. Following this, the Respondent, now acting as the Resolution Professional (RP), filed I.A. No. 766 of 2021 before this Tribunal, seeking approval of the resolution plan under Section 31. That application is still pending. Importantly, the Applicant in the present case was invited to attend every single CoC meeting, including those where the resolution plan and its entitlements were discussed. However, the Applicant chose not to attend those meetings and thereby forfeited the opportunity to raise any grievance before the CoC itself.

iv.

In the meantime, on 6 September 2022, the Hon'ble Supreme Court delivered its judgment in State Tax Officer (1) v. Rainbow Papers Ltd. In that ruling, the Court held that tax dues under the Gujarat VAT Act would qualify as "secured debt" under the IBC and that the State Tax Department would, therefore, be treated as a secured creditor. However, the judgment did not address the question of how such secured creditors would rank in priority when compared with other secured creditors. More importantly, the Rainbow Papers ruling came a full year after the CoC had already approved the resolution plan in October 2021.

v.

When the plan approval application was being considered, this Tribunal, by order dated 10 September 2024, directed the RP and the CoC to clarify whether the Rainbow Papers ruling had any bearing on this case. Acting promptly, the RP convened the 12th CoC meeting on 18 September 2024. Once again, the Applicant was invited to attend but did not turn up. In that meeting, the CoC, assisted by its legal counsel, carefully examined the issue. Counsel pointed out that the Sales Tax Department had attached the Corporate Debtor's property after the moratorium had been declared. Since any such attachment post-moratorium is void under Section 14 of the Code, the RP had already filed an application before this Tribunal on 16 September 2024 seeking to set aside that attachment.

vi.

The Authorised Representative of the Bank of Maharashtra, which is the main financial creditor, also explained that because the attachment was post-moratorium and therefore illegal, the Sales Tax Department could not be treated as a secured creditor in this CIRP and would have to be considered an unsecured creditor. The CoC went further to say that even if the Rainbow Papers judgment were applied, the Sales Tax Department's rights would still be limited only to the liquidation value of its security interest, if any, and that such value would have to be shared on a pari passu basis with the other secured creditors. These points were recorded in the minutes of the 12th CoC meeting.

vii.

The Respondent emphasizes that despite the Applicant's repeated absence from CoC meetings, the CoC has nevertheless looked after its interests. The CoC made sure to deliberate on the effect of Rainbow Papers and came to a balanced position that protects all creditors. Therefore, the Applicant cannot claim that it has been left out or prejudiced.

viii.

Given this sequence of events — the admission of the petition in February 2021, the imposition of moratorium, the conduct of CIRP and constitution of the CoC, the unanimous approval of a resolution plan in October 2021, the later judgment of the Supreme Court in September 2022, this Tribunal's direction in September 2024, and the CoC's considered clarification in its 12th meeting — the Respondent submits that the present application is without merit. The grievance raised is already addressed by the CoC, and the cause of action has become infructuous. Accordingly, the Respondent respectfully prays that this application be dismissed in its entirety.

i.

In compliance of order of this Hon'ble Tribunal specifically directed the Resolution Professional (RP) to clarify the status of the Applicant's dues under the Gujarat Value Added Tax Act (GVAT) and the Central Sales Tax Act (CST). In compliance with these directions, the RP sought a bifurcation of the total claim amounting to ₹5,80,64,381/-. The Applicant accordingly provided the breakup, which showed that ₹4,95,83,045/- pertained to GVAT dues, while ₹84,81,336/- pertained to CST dues.

ii.

Pursuant to this, the RP convened the 13th meeting of the CoC on 31.07.2025 to deliberate upon the treatment of the Applicant's claim. In the meeting, the CoC's counsel apprised the members that in light of the Supreme Court's judgment in State Tax Officer v. Rainbow Papers Ltd., only the portion of the claim relating to GVAT dues could be treated as secured, whereas dues under the CST Act would fall under the category of unsecured claims under the IBC. The CoC noted the bifurcation provided and discussed the matter in detail, also considering orders passed by NCLT in similar cases.

iii.

After deliberation, the CoC reached the following decision: - • GVAT dues of ₹4,95,83,045/- would be treated as secured. - • CST dues of ₹84,81,336/- would be treated as unsecured.

iv.

Further, the CoC confirmed that in respect of the entitlement of the Sales Tax Department under the resolution plan, compliance would be ensured with the ratio laid down in the Rainbow Papers judgment. It was also reiterated that the CoC had already taken a consistent view in the 12th CoC meeting that the secured claim would be dealt with strictly in terms of Rainbow Papers, limited to the liquidation value of the secured asset.

i.

The Applicant, State Tax Officer, has carefully examined the reply affidavit filed by the Resolution Professional (RP) and is submitting this rejoinder in compliance with the order of this Hon'ble Adjudicating Authority dated 07.05.2025 (marked as Annexure A-1). The Applicant emphasizes at the outset that the RP has once again failed to correct his position regarding the treatment of the Applicant as a secured creditor. According to the RP, during the 12th Committee of Creditors (CoC) meeting, the claim of the State Tax Department was discussed, and the RP allegedly informed the CoC that even if the claim were to be treated as secured, the rights of the Department would be limited to the liquidation value of the security interest, if any, and would have to be distributed on a pari passu basis with other secured creditors. The Applicant strongly contests this interpretation, arguing that it is inconsistent with legal precedent and the statutory provisions under the Insolvency and Bankruptcy Code (IBC) and the Gujarat Value Added Tax (GVAT) Act.

ii.

The Applicant further brings to the Tribunal's attention that a similar issue has already been considered by this Hon'ble Tribunal in IA No. 9 of 2025 in CP (IB) No. 211 of 2020, titled Assistant Commissioner of State Tax vs. Mr. Sunil Kumar Kabra, Liquidator of M/s Archon Engicon Limited. In that matter, the Tribunal specifically addressed the treatment of statutory dues under GVAT and CST as secured claims. The Tribunal, in its order dated 30.04.2025, recognized that unpaid GVAT dues should be treated as secured under Section 53(1)(b)(ii) of the IBC. In reaching this conclusion, the Tribunal relied on several judgments of the Hon'ble Supreme Court, including:

a. State Tax Officer vs. Rainbow Papers Ltd., (2022) SCC OnLine SC 1162 (06.09.2022), which clarified that statutory dues to the State should be treated as secured;

b. Paschimanchal Vidyut Vitran Nigam Ltd. vs. Raman Ispat Pvt. Ltd. & Others, (2023) SCC OnLine SC 842 (17.07.2023); and

c. Sanjay Kumar Agrawal vs. State Tax Officer (1) & Another, Review Petition (Civil) No. 1620 of 2023 in Civil Appeal No. 1661 of 2020 (31.10.2023), which reaffirmed the treatment of statutory dues as secured.

iii.

The Applicant has annexed a copy of the Tribunal's order in Archon Engicon as Annexure A-2 to demonstrate that this legal position is binding and applicable in the present matter.

iv.

The Applicant also highlights a procedural concern: during CoC meetings, the Applicant is not granted voting rights because the RP has not recognized them as a secured creditor. Consequently, any objections or concerns raised by the Applicant do not form part of the official CoC deliberations. Additionally, due to unavoidable circumstances, the Applicant's officer could not attend the 12th CoC meeting held on 18.09.2024 and was therefore unable to respond orally to the contentions raised by other CoC members. The RP, instead of clarifying whether the Department's claim is recognized as secured, merely reiterated that if the Rainbow Papers judgment were applicable, the Department's rights would be limited to liquidation value and distributed pari passu with other secured creditors.

“Section 53: Distribution of assets.

53.

(1) 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 and within such period and in such manner as may be specified, namely :—

(a)¹² the insolvency resolution process costs and the liquidation costs paid in full;

(b)

the following debts which shall rank equally between and among the following :—

(i)

workmen’s dues¹² for the period of twenty-four months preceding the liquidation commencement date; and

(ii)

debts owed to a secured creditor¹⁴ in the event such secured creditor has relinquished security in the manner set out in section 52;

(c)

wages¹² and any unpaid dues owed to employees other than workmen for the period of twelve months preceding the liquidation commencement date;

(d)

financial debts owed to unsecured creditors;

(e)

the following dues shall rank equally between and among the following:—

(i)

any amount due to the Central Government and the State Government including the amount to be received on account of the Consolidated Fund of India and the Consolidated Fund of a State, if any, in respect of the whole or any part of the period of two years preceding the liquidation commencement date;¹⁶

(ii)

debts owed to a secured creditor for any amount unpaid following the enforcement of security interest;

(f)

any remaining debts and dues;

(g)

preference shareholders, if any; and

(h)

equity shareholders or partners, as the case may be.

(2)

Any contractual arrangements between recipients under sub-section (1) with equal ranking, if disrupting the order of priority under that sub-section shall be disregarded by the liquidator.

(3)

The fees payable to the liquidator shall be deducted proportionately from the proceeds payable to each class of recipients under sub-section (1), and the proceeds to the relevant recipient shall be distributed after such deduction.

Explanation.- For the purpose of this section—

(i)

it is hereby clarified that at each stage of the distribution of proceeds in respect of a class of recipients that rank equally, each of the debts will either be paid in full, or will be paid in equal proportion within the same class of recipients, if the proceeds are insufficient to meet the debts in full; and

(ii)

the term “workmen’s dues” shall have the same meaning as assigned to it in section 326 of the Companies Act, 2013.”

*“Section 9: Levy and collection of tax and penalties-

9(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 5 [interest or penalty,] payable by a dealer under this Act as if the tax or 6 [interest or penalty] payable by such a dealer under this Act is a tax or 7 [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 sales 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, 8 [refunds, rebates, penalties,] 9 [charging or payment of interest,] compounding of offences and treatment of documents furnished by a dealer as confidential, shall apply accordingly: Provided that if in any State or part thereof there is no general sales tax law in force, the Central Government may, be rules made in this behalf make necessary provision for all or any of the matter specified in this sub-section..”*

“Section 238: Provisions of this Code to override other laws.

*238. The provisions of this Code shall have effect, notwithstanding anything inconsistent therewith contained in any other law for the time being in force or any instrument having effect by virtue of any such law.”