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2024 (8) TMI 1099 - HC - VAT and Sales TaxRecovery of dues - Validity of certain read entries/charge over the properties of petitioner no. 1 on account of dues recoverable from the erstwhile Management of the 1st petitioner-Company under the Himachal Pradesh Value Added Tax Act, 2005 (HP Vat Act), the Central Sales Tax Act, 1956 (CST Act) and Himachal Pradesh Goods and Services Tax Act, 2017 (HPGST Act). Petitioners contend that after approval of acquisition plan, it became binding on all including respondents and any act contrary to the approved plan would be illegal, particularly, when none of the respondents had challenged the acquisition plan which had also been approved by the NCLT. HELD THAT - It is clear that the 1st petitioner-Company, who was unable to pay its dues to Financial Creditors, was made subject to a Corporate Insolvency Resolution Process by one of its Creditors , i.e., the State Bank of India under Section 7 of the IBC and it was admitted on 05.04.2018 vide Annexure P-1. As per sub-Section (4) of Section 14 of the Code, the said order of moratorium would have effect from the date of such order till the completion of the Corporate Insolvency Resolution Process - Since the provisions of the said Code had overriding effect on all laws in view of Section 238 of the Code, it was not permissible for the respondents to create a charge on the property of the petitioner-Company during the currency of the moratorium vide Annexure P-4 dt. 07.01.2020 in violation of the provisions of the IBC. Therefore, ex facie, the said order Annexure P-4 is void in law. When the IBC permits Sale of Assets of a Company in Liquidation as a going concern under Regulation 32 (e) 32A of the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulation, 2016, and in such an e-auction conducted by the Liquidator, the current management made a plan for acquisition vide Annexure P-5A for Rs.49.95 crore and the same was approved by the NCLT on 11.05.2022 vide Annexure P-6 and Sale Certificate was also issued vide Annexure P-7 on 31.05.2022, all the claims of the respondents stood extinguished - the legislative intent was to extinguish all debts owed to the Central Government or any State Government or any Local Authority including the Tax Authorities, when once an approval was granted to Resolution Plan by the NCLT. As per the amended Section 31 of the Code, the said principle of taking over Corporate Debtor under a Resolution Plan, will also apply to taking over by way of acquisition plan. This is referred to as the Clean Slate principle of IBC - The plea of the respondents that the tax dues claimed by them will have priority as a Crown Debt , therefore, cannot be accepted, and their action in continuing the said red entry/charge on account of dues recoverable from erstwhile management of the 1st petitioner-Company under the H.P. Vat Act, 2005, HPGST Act, 2017 and the CST Act, 1956, would be clearly illegal arbitrary. A Writ of Mandamus is issued directing the 4th respondent to remove its charge/red entries/claim for the tax dues of the erstwhile management of the 1st petitioner-Company on the properties of the said petitioner forthwith, from the revenue record - Petition allowed.
Issues Involved:
1. Validity of the charge/red entries on the properties of the 1st petitioner-Company. 2. Compliance with the Insolvency and Bankruptcy Code (IBC) during the liquidation process. 3. Priority of state debts over secured creditors. 4. Legal effect of the acquisition plan approved by the NCLT. Detailed Analysis: 1. Validity of the charge/red entries on the properties of the 1st petitioner-Company: The core issue in the writ petition revolves around the legality of the charge/red entries marked on the properties of the 1st petitioner-Company by the respondents. The petitioners argued that these entries were made without issuing any notice or hearing the Liquidator, thereby violating the Principles of Natural Justice and Section 33(5) of the IBC. The court noted that the entries were made during the moratorium period imposed by the NCLT, which rendered such actions void under Section 14 of the IBC. Consequently, the court held that the red entries/charge created on 07.01.2020 were void in law. 2. Compliance with the Insolvency and Bankruptcy Code (IBC) during the liquidation process: The 1st petitioner-Company was subjected to a Corporate Insolvency Resolution Process (CIRP) initiated by the State Bank of India, which led to the appointment of a Resolution Professional and the imposition of a moratorium. The NCLT later ordered the liquidation of the 1st petitioner-Company, and a Liquidator was appointed. The Liquidator called for claims from creditors, including the Department of State Taxes & Excise, Government of Himachal Pradesh, which filed a claim for Rs. 354,11,34,131/-. The court observed that the claims were treated under the category of "Operational Creditors" and admitted under Section 40 of the IBC. The court emphasized that the IBC has an overriding effect on all other laws, making any inconsistent actions, such as the creation of charges during the moratorium, void. 3. Priority of state debts over secured creditors: The respondents contended that state debts have priority over the rights of secured creditors, relying on the judgment in Central Bank of India vs. State of Kerala & Ors. The court, however, rejected this argument, citing the Supreme Court's judgment in Ghanashyam Mishra and Sons Private Limited vs. Edelweiss Asset Reconstruction Company Limited, which clarified that once a resolution plan is approved by the NCLT, all claims, including those of the state or central government, are extinguished. The court held that the legislative intent behind the IBC is to provide a "clean slate" for the resolution applicant, thereby extinguishing all previous debts and claims. 4. Legal effect of the acquisition plan approved by the NCLT: The acquisition plan submitted by the current management of the 1st petitioner-Company was approved by the NCLT, and the sale of the company as a going concern was confirmed. The respondents did not object to the acquisition plan during the liquidation process, nor did they challenge the NCLT's approval. The court noted that the acquisition plan became a binding document in rem and had the force of law, as confirmed by the NCLAT and the Supreme Court. The court reiterated that the principle of a "clean slate" applies to acquisition plans, extinguishing all previous claims and debts. Conclusion: The court concluded that the actions of the respondents in continuing the red entries/charge on the properties of the 1st petitioner-Company were illegal and arbitrary. The writ petition was allowed, and a writ of mandamus was issued directing the 4th respondent to remove its charge/red entries/claim for the tax dues of the erstwhile management of the 1st petitioner-Company from the revenue record. The court emphasized that the IBC overrides all other laws, and once a resolution or acquisition plan is approved, all previous claims and debts are extinguished.
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