State Tax Officers Vs Rainbow Papers Limited
Civil Appeal No. 1661 of 2020
Facts:
1.Respondent is the company that was engaged in the business of manufacture and sale of Crafts and Oars within and outside the State of Gujarat since 16th April, 1990.
2.Appellant has, from time to time, been assessed for Value Added Tax (VAT) and Central Sales Tax (CST) under the GVAT Act. It is stated that an amount of Rs.53,71,65,489/- is due from the Respondent to the Sales Tax authorities towards CST and VAT. On or about 8th July, 2016, recovery proceedings were initiated against the respondent, in respect of its dues for the year 2011- 2012, and the appellant attached the property of the respondent being land at Survey No.2379 and 2381 situated at Rajpur, Taluka Kadi on 8th October, 2018.
3.Neeraj Papers Private Limited operational creditor of the respondent company filed application for initiating CIRP before NCLT Ahmedabad Bench which was admitted in September 2017. Claims were invited from Creditors under Section 15 of the IBC by issuance of newspaper publications. The last date for submission of claims was 5th October 2017. Appellant filed a claim before the RP in the requisite Form B, claiming that Rs.47.36 crores (approximately), was due and payable by the respondent to the appellant, towards its dues under the GVAT Act. The claim was filed beyond time.
4.By an order Sr. No.JCCT/Div-4/Mahesana/NCLT/case/ O.W.No.3090 dated 22nd October, 2018, the appellant called upon the RP to confirm the claim of the appellant towards outstanding tax dues. By a letter dated 22nd October, 2018, the Resolution Professional informed the appellant that the entire claim of the appellant had been waived off. The order of the RP was conveyed to the appellant by an email dated 6th November, 2018.
5.Appellant challenged the Resolution Plan by making an application being I.A No. P-01 of 2019 before the Ahmedabad Bench of the NCLT contending that Government dues could not be waived off. The appellant prayed for payment of total dues of Rs.47,35,72,314/- towards VAT/CST on the ground that the Sales Tax Officer was a secured creditor which was rejected by the NCLT. On or about 8th April, 2019, the appellant filed an appeal before the NCLAT against the order of NCLT which was dismissed by the NCLAT.
Issue: Whether the provisions of the IBC and, in particular, Section 53 thereof, overrides Section 48 of the GVAT Act?
Arguments:
For Appellants:
1.Learned Solicitor General submitted that there were proceedings initiated by the State against the respondent-Corporate Debtor to realise its statutory dues. The Books of Accounts of the Corporate Debtor would have reflected the liability of the Corporate Debtor to the State in respect of its statutory dues. In abdication of its mandatory duty, the RP failed to examine the Books of Accounts of the Corporate Debtor, verify and include the same in the information memorandum and make provision for the same in the Resolution Plan. The Resolution Plan does not conform to the statutory requirements of the IBC and is, therefore, not binding on the State.
2. Her further submitted that a reading of Sections 3(30) and 3(31) of the IBC makes it clear that the finding of the NCLAT that the State is not a secured creditor is erroneous and contrary to the clear definition of secured creditor under the IBC.
3. He further submitted that the term “Secured Creditor” as defined under the IBC is comprehensive and wide enough
to cover all types of security interests namely, the right, title, interest or a claim to property, created in favour of, or provided for a secured creditor by a transaction, which secures payment or performance of an obligation and includes mortgage, charge, hypothecation, assignment and encumbrance or any other agreement or arrangement securing
payment or performance of any obligation of any person.
4.Learned ASG submitted that the mere fact that a creditor might be an operational creditor would not result in loss of status of that operational creditor as a secured creditor. The finding of the Appellate Authority is contrary to law and cannot be sustained. He pointed out that the Appellant had made its claim to the RP on 28.02.2018, long before the resolution plan was approved by the CoC under Section 30(4) of the IBC. Yet, the RP did not include the claim in the Resolution Plan. He argued that the RP was obliged to receive, verify and collate claims and forward the same to the Adjudicating Authority for approval.
5.Referring to Section 30(2) of the IBC, the learned ASG argued that the afore-mentioned provision mandates the RP to ensure that the Resolution Plan conforms to the parameters/requirements laid down in the said provision.
Decision: Supreme Court hold that NCLAT clearly erred in its observation that Section 53 of the IBC over-rides Section 48 of the GVAT Act.
Rationale:
1.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.
2.Accepting the argument of Learned SG 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.
3.Adjudicating Authority (NCLT) and the Appellate Authority (NCLAT) have held that the claim of the State is belated. Regulation 12 of the 2016 Regulations deals with the time period for submission of a claim along with proof, as stipulated in the public announcement under Section 15 of the IBC. The time period is, however, not mandatory but only directory.
4.It noted that when a grievance was made before the Adjudicating Authority with regard to a Resolution Plan, the Adjudicating Authority was required to examine if the Resolution Plan met the requirements of Section 30(2) of the IBC. The word “satisfied” used in Section 31(1) contemplates a duty on the Adjudicating Authority to examine the Resolution Plan – The Resolution Plan cannot be approved by way of an empty formality.
5.It noted that there cannot be acceptance of a Resolution Plan that is not in conformity with the statutory provisions of Section 31(2) of the IBC. Ordinarily, the use of the word “shall” connotes a mandate/binding direction, while use of the expression “may” connotes discretion. If statute says, a person may do a thing, he may also not do that thing. Even if Section 31(2) is construed to confer discretionary power on the Adjudicating Authority to reject a Resolution Plan, it has to be kept in mind that discretionary power cannot be exercised arbitrarily, whimsically or without proper application of mind to the facts and circumstances which require discretion to be exercised one way or the other.
6.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”.
7.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 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.
8.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.
9. 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.
Order Copy:
