Priyanka Singh
Published on: September 12, 2022 at 18:54 IST
The Supreme Court bench of Justices Indira Banerjee and AS Bopanna has reversed the order by NCLAT which held that the Government cannot claim the first charge over the property of the Corporate Debtor which is contrary to the Section 48 of the Gujarat Value Added Tax Act, 2003 (GVAT Act)
The provisons provides for the first charge of property of dealer with regard to any assigned amount payable by the dealer (as of tax, interest, penalty etc.) under the GVAT Act cannot override the Section 53 of the Insolvency and Bankruptcy Code, 2016 (IBC).
U/s 53(1)(b)(ii), the debts owed to a secured creditor (also including the State) under the GVAT Act are to be equally ranked with other specified debts, including debts on account of workman’s dues, for a period of 24 months predeceasing the liquidation initiation date.
Delving into both the Statutes, the Court stated that the Section 3(30) of the IBC defines a creditor to mean a ‘creditor in favour of whom security interest is credited’; operation of law could generate such security interest.
The definition doesn’t exclude any Government or Governmental Authority, and on the same plane, the State is a secured creditor under the GVAT Act. The same would be invalid and non-binding on any Government, statutory or other authority, financial creditor or other creditor whom a debt is in time being in force in owed.
Therefore, resolution plans won’t bind the State when there are outstanding statutory dues of a Corporate Debtor.
With regards to the Section 31 of the IBC, the Court mandated the Resolution Plan to be approved by the Adjudicating Authority u/s 31(1), given the requirements are met.
On the contrary, Section 31(2) uses the expression “may” with reference to rejection of the Resolution Plan by the Adjudicating Authority, also pressing the ways prescribed to exercise the Resolution Plan.
It was, hence, held by the Court that if the Resolution Plan is neglectful towards the statutory demands payable to any Government or legal authority, then the Adjudicating Authority is bound to reject the Resolution Plan.
It also observed that the Committee of Creditors cannot secure their dues by the statutory dues owed by any Government or Governmental Authority or through any other dues.
Therefore, if a company fails to pay its debts that include statutory debts to any Government or Governmental Authority, also failing to form a plan which contemplates the fulfilment of those debts phase – wise and uniformly, the company would be necessarily have to be liquidated and have its assets sold and distributed in the accordance with Section 53 of the IBC.