2019 (12) TMI 1400 - Tri - Insolvency and Bankruptcy

Removal of attachment/charge on the properties - removal of attachment/charge on the properties in question as registered with the revenue department of the Government of Gujarat - prayer to enjoy the properties in question absolutely and without any encumbrance - Section 60(5) of the Insolvency and Bankruptcy Code, 2016 - HELD THAT - The dues of the Government are not considered as a secured debt under Section 3(31) of the Code, do not get precedence over secured creditors under Section 53 and do not fall in Clause(b) of Section 53, but fall under Clause(e) of Section 53 - Hence, it is clear that the amount dues to the Central Govt. and State Govt. shall be paid after the dues of the financial secured creditors are paid. In this case, the admitted dues of the secured creditor were ₹ 139.60 Crores, whereas the liquidation proceeds of ₹ 35.60 crores could satisfy 25.5% of the secured financial creditor's admitted dues. Hence, there is no assets available for payment of dues of the Income Tax Deptt., Govt. of India and State Tax Deptt., Govt. of Gujarat. Application is admitted to the extent that the concerned Dept. of the State Government is directed to remove the attachment/charge on the properties of the Corporate Debtor under Liquidation; already sold on 26.03.2018 under e-auction by the Liquidator, from the Register maintained by the Mamlatdar, Revenue Deptt., Govt. of Gujarat. The peaceful possession of the said property be handed over to the Buyer, M/s. Haq Steels Metaliks Ltd.

Issues Involved:
1. Removal of attachment/charge on the properties in question.
2. Distribution of proceeds from the sale of liquidation assets.
3. Priority of claims under Section 53 of the Insolvency and Bankruptcy Code, 2016.
4. Classification of the State Tax Department as a secured or operational creditor.

Detailed Analysis:

1. Removal of Attachment/Charge on the Properties in Question:
The Applicant, as the successful bidder in the e-auction held on 08.03.2018, sought the removal of the attachment/charge on the properties in question, which was registered with the revenue department of the Government of Gujarat. The Applicant argued that the transfer of interest in the properties had been duly registered, but the revenue records still showed a charge of ?47,22,37,726/- by the State Tax Department. The Applicant contended that as per Section 53 of the Insolvency and Bankruptcy Code, 2016, the dues of the secured creditors rank prior to the dues of the Central and State Government, and thus the noting of the State Tax Department should not affect the title to the properties acquired through e-auction.

2. Distribution of Proceeds from the Sale of Liquidation Assets:
The liquidator made a public announcement inviting claims from stakeholders and subsequently received various claims, including from the State Tax Department. The liquidator took possession of the assets and conducted an e-auction, where the Applicant emerged as the highest bidder. The proceeds from the sale were to be distributed as per the priority stipulated in Section 53 of the Code. The secured creditors had relinquished their interest, and the proceeds were distributed among all creditors accordingly.

3. Priority of Claims under Section 53 of the Insolvency and Bankruptcy Code, 2016:
Section 53 outlines the order of priority for distribution of liquidation assets, with secured creditors' dues ranking higher than those of the Central and State Government. The Tribunal referred to the Supreme Court's judgment in the Essar Steel case, which clarified that the dues of the Government are not considered secured debts under Section 3(31) of the Code and do not get precedence over secured creditors. In this case, the admitted dues of the secured creditor were ?139.60 Crores, while the liquidation proceeds were only ?35.60 Crores, satisfying only 25.5% of the secured creditors' dues, leaving no assets for payment of the State Tax Department's dues.

4. Classification of the State Tax Department as a Secured or Operational Creditor:
The State Tax Department claimed a first charge on the properties under Section 48 of the Gujarat Value Added Tax, 2003, asserting that they should be treated as secured creditors. However, the Tribunal noted that the attachment by the Commercial Tax Department did not make the State Tax Department a secured creditor under the Code. The Tribunal reiterated that Section 238 of the Code overrides other laws, and the dues of the State Tax Department fall under Clause (e) of Section 53, not Clause (b). The Tribunal also emphasized that the secured creditor must relinquish its security interest to the liquidation estate, which the State Tax Department had not done.

Conclusion:
The Tribunal admitted the prayer made by the Applicant and directed the concerned department of the State Government to remove the attachment/charge on the properties of the Corporate Debtor under liquidation. The peaceful possession of the property was to be handed over to the Applicant, ensuring they could enjoy the properties without any encumbrance. The application was disposed of with these observations and directions.

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