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2022 (9) TMI 317 - SC - VAT / Sales TaxRecovery of dues - priority of settlement of dues - Government can claim first charge over the property of the Corporate Debtor or not - whether Section 48 of the Gujarat Value Added Tax, 2003 can prevail over Section 53 of the IBC or not - HELD THAT - Section 31 of the IBC which provides for approval of a Resolution Plan by the Adjudicating Authority makes it clear that the Adjudicating Authority can approve the Resolution Plan only upon satisfaction that the Resolution Plan, as approved by the Committee of Creditors (CoC), meets the requirements of Section 30(2) of the IBC. When the Resolution Plan does not meet the requirements of Section 30(2), the same cannot be approved. There can be no question of acceptance of a Resolution Plan that is not in conformity with the statutory provisions of Section 31(2) of the IBC. Section 30(2) (b) of the IBC, casts an obligation on the Resolution Professional to examine each resolution plan received by him and to confirm that such resolution plan provides for the payment of dues of operational creditors, as specified by the Board, which shall not be less than the amount to be paid to such creditors, in the event of liquidation of the Corporate Debtor under Section 53, or the amount that would have been paid to such operational creditors, if the amount to be distributed under the resolution plan had been distributed in accordance with the order of priority in Sub-section 2 of Section 53, whichever was higher, and provided for the payment of debts of financial creditors, who did not vote in favour of the resolution plan, in such manner as might be specified by the Board. Under Section 31 of the IBC, a resolution plan as approved by the Committee of Creditors under Sub-Section (4) of Section 30 might be approved by the Adjudicating Authority only if the Adjudicating Authority is satisfied that the resolution plan as approved by the Committee of Creditors meets the requirements as referred to in Sub- Section (2) of Section 30 of the IBC. The condition precedent for approval of a resolution plan is that the resolution plan should meet the requirements of Sub-Section (2) of Section 30 of the IBC. 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 - 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 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. The Resolution plan approved by the CoC is also set aside - Appeal allowed.
Issues Involved:
1. Whether the provisions of the Insolvency and Bankruptcy Code, 2016 (IBC), particularly Section 53, override Section 48 of the Gujarat Value Added Tax Act, 2003 (GVAT Act). 2. Whether the State Tax Department qualifies as a "Secured Creditor" under the IBC. 3. Validity of the Resolution Plan approved by the Committee of Creditors (CoC) and the Adjudicating Authority (NCLT). 4. Timeliness and admissibility of the State Tax Department's claim. Issue-wise Detailed Analysis: 1. Overriding Provisions of IBC Over GVAT Act: The core question was whether Section 53 of the IBC, which outlines the distribution of assets during liquidation, overrides Section 48 of the GVAT Act, which provides for the first charge on the property of a dealer for tax dues. The Supreme Court held that Section 53 of the IBC, which starts with a non-obstante clause, does not override Section 48 of the GVAT Act. It was clarified that Section 48 is not contrary to Section 53 of the IBC. The debts owed to a secured creditor, including the State under the GVAT Act, rank equally with other specified debts under Section 53(1)(b)(ii). 2. State Tax Department as a "Secured Creditor": The court examined whether the State Tax Department qualifies as a "Secured Creditor" under Sections 3(30) and 3(31) of the IBC. It was determined that the statutory charge under Section 48 of the GVAT Act falls within the definition of "Security Interest" under Section 3(31) of the IBC, making the State a secured creditor under Section 3(30). The NCLAT's finding that the State is not a secured creditor was deemed erroneous. 3. Validity of the Resolution Plan: The Supreme Court scrutinized whether the Resolution Plan met the requirements of Section 30(2) of the IBC, which mandates the inclusion of operational creditors' dues. It was found that the Resolution Plan did not conform to the statutory requirements, as it failed to account for the statutory dues of the State. Consequently, the court held that the Resolution Plan could not be approved, as it did not meet the mandatory conditions of Section 30(2). The court emphasized that a Resolution Plan ignoring statutory dues payable to the Government must be rejected. 4. Timeliness and Admissibility of the State Tax Department's Claim: The court addressed the issue of the timeliness of the State's claim, noting that the State had initiated recovery proceedings and that the Books of Accounts of the Corporate Debtor reflected the liability. The court held that the time stipulations for submitting claims under Regulation 12 of the 2016 Regulations are directory, not mandatory. The rejection of the State's claim solely on the ground of delay was found to be unsustainable. The court stated that the Resolution Professional (RP) had a duty to verify and include the State's claim in the Resolution Plan. Conclusion: The Supreme Court allowed the appeals, set aside the impugned orders of the NCLAT and NCLT, and invalidated the approved Resolution Plan. The RP was directed to consider a fresh Resolution Plan that includes provisions for the dues of statutory creditors like the appellant. The judgment emphasized that statutory dues must be accounted for in any Resolution Plan, and the State qualifies as a secured creditor under the IBC.
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