STATE TAX OFFICER (1) VERSUS RAINBOW PAPERS LIMITED

STATE TAX OFFICER (1)  VERSUS RAINBOW PAPERS LIMITED

Landmark Cases of India / सुप्रीम कोर्ट के ऐतिहासिक फैसले


REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 1661 OF 2020
STATE TAX OFFICER (1) ...APPELLANT(S)
VERSUS
RAINBOW PAPERS LIMITED ... RESPONDENT(S)
WITH
CIVIL APPEAL NO. 2568 OF 2020
J U D G M E N T
Indira Banerjee, J.
These appeals under Section 62 of the Insolvency and
Bankruptcy Code, 2016, hereinafter referred to as ‘IBC’, is against a
judgment and order dated 19th December, 2019, passed by the
National Company Law Appellate Tribunal (NCLAT) dismissing
Company Appeal (AT)(Insolvency) No. 404 of 2019 filed by the
Appellant, against an order dated 27th February 2019 of the
Adjudicating Authority, rejecting the application being I.A
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No.224/271/272/337 of 2018 and P-01 of 2019 in C.P. No. (IB)
88/9/NCLT/AHM/2017 filed by the appellants and holding that the
Government cannot claim first charge over the property of the
Corporate Debtor, as Section 48 of the Gujarat Value Added Tax,
2003, hereinafter referred to as the “GVAT Act”, which provides for
first charge on the property of a dealer in respect of any amount
payable by the dealer on account of tax, interest, penalty etc. under
the said GVAT Act, cannot prevail over Section 53 of the IBC.
2. The short question raised by the appellant in this appeal is,
whether the provisions of the IBC and, in particular, Section 53
thereof, overrides Section 48 of the GVAT Act which is set out herein
below for convenience:-
“48. Tax to be first charge on property.—
Notwithstanding anything to the contrary contained in any
law for the time being in force, any amount payable by a
dealer or any other person on account of tax, interest or
penalty for which he is liable to pay to the Government shall
be a first charge on the property of such dealer, or as the
case maybe, such person.”
3. The respondent, a company within the meaning of the
Companies Act, 2013 is engaged in the business of manufacture
and sale of Crafts and Oars within and outside the State of Gujarat
since 16th April, 1990.
4. The 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, as per
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the statement enclosed at Page 44 of the Paper Book.
5. 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.
6. One Neeraj Papers Private Limited, as operational creditor of
the respondent, filed Company Petition (IB) No.88 of 2017 under
Section 9 of the IBC before Ahmedabad Bench of the National
Company Law Tribunal (NCLT), for initiation of the Corporate
Insolvency Resolution Process (CIRP) against the respondent.
7. By an order dated 12th September, 2017, the said Company
Petition [Company Petition (IB) No. 88 of 2017] filed by the said
Neeraj Papers Private Limited was admitted. One George Samuel
was appointed Interim Resolution Professional (IRP) on 22nd
September, 2017.
8. After appointment of the said George Samuel as IRP, 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.
9. After receipt of claims, a Committee of Creditors (CoC) was
constituted on 10th October 2017. At its first meeting, the CoC
passed a resolution to replace the IRP. Accordingly, Ramachandra
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D. Choudhary, a Chartered Accountant, was appointed as Resolution
Professional (RP). The appointment of Mr. Choudhary was approved
by the NCLT by an order dated 6th November 2017.
10. The 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.
11. After admission of the CIRP and appointment of the RP, one
Kushal Limited submitted a Resolution Plan. Various Creditors had
objected to the Resolution Plan.
12. The Tourism Finance Corporation of India Limited, a financial
creditor of the Respondent-Corporate Debtor moved an interlocutory
application No.273 of 2018 contending that the Tourism Finance
Corporation of India Limited had wrongly been categorised as an
unsecured financial creditor.
13. 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.
14. 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.
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15. On or about 20th December, 2018, the 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.
16. By an order dated 27th February, 2019 in IA No.
224/271/272/337 of 2018 and P-01 of 2019 in CP No.(IB) 88 of 2017,
the Adjudicating Authority being the Ahmedabad Bench of the NCLT
rejected the application made by the appellant as not maintainable.
The Adjudicating Authority (NCLT) Ahmedabad held:-
“13. The Resolution Applicant again filed the amended
resolution plan on 26.05.2018. On scrutiny RP issued
certificate on 28.05.2018 in compliance of the Regulation
39(2). Accordingly, RP/the applicant issued notice dated
29.05.2018 for convening the eighth and final meeting of
CoC on 04.06.2018. In the said meeting, CoC sought certain
changes in the plan. In view of that, the Resolution
Applicant was permitted to provide the addendum to the
revised plan within a period of one (1) day which was
accepted and duly acted upon by the Resolution applicant.
14. The said amended revised resolution plan along
with the addendum dated 05.06.2018 was placed for evoting before the members of the CoC which took place on
two (2) days i.e. on 06.06.2018 and 07.06.2018. The CoC in
their aforesaid e-voting resolved to approve the resolution
plan along with the addendum with majority of 79.79%
voting share in favour of the Resolution Applicant.
xxx xxx xxx
16. On filing of the application by the RP under Section
30(6) read with section 31 of the Code, notices were issued
to the CoC and suspended management. CoC approved and
conceded to the fact of filing application by the RP under
section 33(6) of the Code and have supported the argument
advanced by the Ld. Counsel of the RP. No representation
received from the suspended management.”
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17. On or about 8th April, 2019, the appellant filed an appeal
before the NCLAT against the aforesaid order dated 27th February
2019 of the Adjudicating Authority, under Section 61 of the IBC. The
appeal has been dismissed by the NCLAT by the judgment and order
impugned.
18. The NCLAT held:-
“34. The Adjudicating Authority noticed that the Appellant
approached the ‘Resolution Professional’ on 22
nd
 October,
2018 whereas the ‘Resolution Plan’ dated 26
th
 May, 2018
along with Addendum dated 5
th
 June, 2018 was approved by
the ‘Committee of Creditors’ with voting majority of 72.79
per cent in favour of the ‘Resolution Plan’. Thus, the claim
was made by the Appellant at a much belated stage not only
before the ‘Resolution Professional’ but also before the
Adjudicating Authority.
35. We find that the Appellant has not filed claim within
time. It approached the ‘Resolution Professional’ at belated
stage after approval of the ‘Resolution Plan’ by the
Adjudicating Authority.
36. Learned counsel for the ‘Resolution Professional’
submitted that the claim of the Appellant- ‘State Tax Officer
(1)’ comes within the meaning of ‘Operational Debt’ as
defined under Section 5(21). The claim of the Appellant also
does not fall within the meaning of ‘Secured Creditor’ as
defined under Section 3(30) read with Section 3(31) of the
I&B Code.
***
38. In view of Statement of Objects and Reasons of the ‘I&B
Code’ read with Section 53 of the ‘I&B Code’, the
Government cannot claim first charge over the property of
the ‘Corporate Debtor’. Section 48 cannot prevail over
Section 53. Therefore, the Appellant – ‘State Tax Officer-(1)’
do not come within the meaning of ‘Secured Creditor’ as
defined under Section 3(30) read with Section 3(31) of the
I&B Code’.
39. Further, as ‘Sales Tax Department’ filed its claim at
belated stage after the plan had been approved by the
‘Committee of Creditors’, the ‘Resolution Professional’ had
no jurisdiction to entertain the same and rightly not
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entertained.”
19. Sections 30 and 31 of the IBC are set out hereinbelow for
convenience:-
“30. Submission of resolution plan.—(1) A resolution
applicant may submit a resolution plan along with an
affidavit stating that he is eligible under Section 29-A to the
resolution professional prepared on the basis of the
information memorandum.
(2) The resolution professional shall examine each resolution
plan received by him to confirm that each resolution plan—
(a) provides for the payment of insolvency resolution process
costs in a manner specified by the Board in priority to the
payment of other debts of the corporate debtor;
(b) provides for the payment of debts of operational
creditors in such manner as may be specified by the Board
which shall not be less than—
(i) the amount to be paid to such creditors in the event of a
liquidation of the corporate debtor under Section 53; or
(ii) the amount that would have been paid to such creditors,
if the amount to be distributed under the resolution plan had
been distributed in accordance with the order of priority in
sub-section (1) of Section 53,
whichever is higher, and provides for the payment of debts
of financial creditors, who do not vote in favour of the
resolution plan, in such manner as may be specified by the
Board, which shall not be less than the amount to be paid to
such creditors in accordance with sub-section (1) of Section
53 in the event of a liquidation of the corporate debtor.
Explanation 1.—For the removal of doubts, it is hereby
clarified that a distribution in accordance with the provisions
of this clause shall be fair and equitable to such creditors.
Explanation 2.—For the purposes of this clause, it is hereby
declared that on and from the date of commencement of the
Insolvency and Bankruptcy Code (Amendment) Act, 2019,
the provisions of this clause shall also apply to the corporate
insolvency resolution process of a corporate debtor—
(i) where a resolution plan has not been approved or rejected
by the Adjudicating Authority;
(ii) where an appeal has been preferred under Section 61 or
Section 62 or such an appeal is not time barred under any
provision of law for the time being in force; or
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(iii) where a legal proceeding has been initiated in any court
against the decision of the Adjudicating Authority in respect
of a resolution plan;
(c) provides for the management of the affairs of the
corporate debtor after approval of the resolution plan;
(d) the implementation and supervision of the resolution
plan;
(e) does not contravene any of the provisions of the law for
the time being in force;
(f) conforms to such other requirements as may be specified
by the Board.
Explanation.—For the purposes of clause (e), if any approval
of shareholders is required under the Companies Act, 2013
or any other law for the time being in force for the
implementation of actions under the resolution plan, such
approval shall be deemed to have been given and it shall not
be a contravention of that Act or law.
(3) The resolution professional shall present to the
committee of creditors for its approval such resolution plans
which confirm the conditions referred to in sub-section (2).
(4) The committee of creditors may approve a resolution
plan by a vote of not less than sixty-six per cent of voting
share of the financial creditors, after considering its
feasibility and viability the manner of distribution proposed,
which may take into account the order of priority amongst
creditors as laid down in sub-section (1) of Section 53,
including the priority and value of the security interest of a
secured creditor, and such other requirements as may be
specified by the Board:
Provided that the committee of creditors shall not approve a
resolution plan, submitted before the commencement of the
Insolvency and Bankruptcy Code (Amendment) Ordinance,
2017 (Ord. 7 of 2017), where the resolution applicant is
ineligible under Section 29-A and may require the resolution
professional to invite a fresh resolution plan where no other
resolution plan is available with it:
Provided further that where the resolution applicant referred
to in the first proviso is ineligible under clause (c) of Section
29-A, the resolution applicant shall be allowed by the
committee of creditors such period, not exceeding thirty
days, to make payment of overdue amounts in accordance
with the proviso to clause (c) of Section 29-A:
Provided also that nothing in the second proviso shall be
construed as extension of period for the purposes of the
proviso to sub-section (3) of Section 12, and the corporate
insolvency resolution process shall be completed within the
period specified in that sub-section.
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Provided also that the eligibility criteria in Section 29-A as
amended by the Insolvency and Bankruptcy Code
(Amendment) Ordinance, 2018 (Ord. 6 of 2018) shall apply
to the resolution applicant who has not submitted resolution
plan as on the date of commencement of the Insolvency and
Bankruptcy Code (Amendment) Ordinance, 2018.
(5) The resolution applicant may attend the meeting of the
committee of creditors in which the resolution plan of the
applicant is considered:
Provided that the resolution applicant shall not have a right
to vote at the meeting of the committee of creditors unless
such resolution applicant is also a financial creditor.
(6) The resolution professional shall submit the resolution
plan as approved by the committee of creditors to the
Adjudicating Authority.
31. Approval of resolution plan.—(1) If the
Adjudicating Authority is satisfied that the resolution plan as
approved by the committee of creditors under sub-section
(4) of Section 30 meets the requirements as referred to in
sub-section (2) of Section 30, it shall by order approve the
resolution plan which shall be binding on the corporate
debtor and its employees, members, creditors, including the
Central Government, any State Government or any local
authority to whom a debt in respect of the payment of dues
arising under any law for the time being in force, such as
authorities to whom statutory dues are owed, guarantors
and other stakeholders involved in the resolution plan:
Provided that the Adjudicating Authority shall, before passing
an order for approval of resolution plan under this subsection, satisfy that the resolution plan has provisions for its
effective implementation.
(2) Where the Adjudicating Authority is satisfied that the
resolution plan does not confirm to the requirements referred
to in sub-section (1), it may, by an order, reject the
resolution plan.
(3) After the order of approval under sub-section (1),—
(a) the moratorium order passed by the Adjudicating
Authority under Section 14 shall cease to have effect; and
(b) the resolution professional shall forward all records
relating to the conduct of the corporate insolvency resolution
process and the resolution plan to the Board to be recorded
on its database.
(4) The resolution applicant shall, pursuant to the resolution
plan approved under sub-section (1), obtain the necessary
approval required under any law for the time being in force
within a period of one year from the date of approval of the
resolution plan by the Adjudicating Authority under sub9
section (1) or within such period as provided for in such law,
whichever is later:
Provided that where the resolution plan contains a provision
for combination, as referred to in Section 5 of the
Competition Act, 2002 (12 of 2003), the resolution applicant
shall obtain the approval of the Competition Commission of
India under that Act prior to the approval of such resolution
plan by the committee of creditors.”
20. Section 53 of the IBC, which provides for the mode and
manner for distribution of the proceeds of sale of the assets of a
Corporate Debtor in liquidation, is set out hereinbelow for
convenience :-
“53. Distribution of assets.—(1) Notwithstanding anything
to the contrary contained in any law enacted by the
Parliament or any State Legislature for the time being in
force, the proceeds from the sale of the liquidation assets
shall be distributed in the following order of priority and
within such period and in such manner as may be specified,
namely—
(a) the insolvency resolution process costs and the
liquidation costs paid in full;
(b) the following debts which shall rank equally between and
among the following—
(i) workmen's dues for the period of twenty-four months
preceding the liquidation commencement date; and
(ii) debts owed to a secured creditor in the event such
secured creditor has relinquished security in the manner set
out in Section 52;
(c) wages and any unpaid dues owed to employees other
than workmen for the period of twelve months preceding the
liquidation commencement date;
(d) financial debts owed to unsecured creditors;
(e) the following dues shall rank equally between and among
the following :—
(i) any amount due to the Central Government and the State
Government including the amount to be received on account
of the Consolidated Fund of India and the Consolidated Fund
of a State, if any, in respect of the whole or any part of the
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period of two years preceding the liquidation
commencement date;
(ii) debts owed to a secured creditor for any amount unpaid
following the enforcement of security interest;
(f) any remaining debts and dues;
(g) preference shareholders, if any; and
(h) equity shareholders or partners, as the case may be.
(2) Any contractual arrangements between recipients under
sub-section (1) with equal ranking, if disrupting the order of
priority under that sub-section shall be disregarded by the
liquidator.
(3) The fees payable to the liquidator shall be deducted
proportionately from the proceeds payable to each class of
recipients under sub-section (1), and the proceeds to the
relevant recipient shall be distributed after such deduction.
Explanation.—For the purpose of this section—
(i) it is hereby clarified that at each stage of the distribution
of proceeds in respect of a class of recipients that rank
equally, each of the debts will either be paid in full, or will be
paid in equal proportion within the same class of recipients,
if the proceeds are insufficient to meet the debts in full; and
(ii) the term “workmen's dues” shall have the same meaning
as assigned to it in Section 326 of the Companies Act, 2013
(18 of 2013).”
21. In exercise of power conferred under Sections 5, 7, 9, 14, 15, 17,
18, 21, 24, 25, 29, 30, 196 and 208 read with Section 240 of the IBC,
the Insolvency and Bankruptcy Board of India, hereinafter referred to as
Board, has framed the Insolvency and Bankruptcy Board of India
(Insolvency Resolution Process for Corporate Persons) Regulations,
2016, hereinafter referred to as “the 2016 Regulations”. Some of the
relevant provisions of the 2016 Regulations are extracted hereinbelow
for convenience :-
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“4. Access to books.—(1) Without prejudice to Section
17(2)(d), the interim resolution professional or the resolution
professional, as the case may be, may access the books of
account, records and other relevant documents and
information, to the extent relevant for discharging his duties
under the Code, of the corporate debtor held with—
(a) depositories of securities;
(b) professional advisors of the corporate debtor;
(c) information utilities;
(d) other registries that records the ownership of assets;
(e) members, promoters, partners, board of directors and
joint venture partners of the corporate debtor; and
(f) contractual counterparties of the corporate debtor.
(2) The personnel of the corporate debtor, its promoters or
any other person associated with the management of the
corporate debtor shall provide the information within such
time and in such format as sought by the interim resolution
professional or the resolution professional, as the case may
be.
(3) The creditor shall provide to the interim resolution
professional or resolution professional, as the case may be,
the information in respect of assets and liabilities of the
corporate debtor from the last valuation report, stock
statement, receivables statement, inspection reports of
properties, audit report, stock audit report, title search
report, technical officers report, bank account statement and
such other information which shall assist the interim
resolution professional or the resolution professional in
preparing the information memorandum, getting valuation
determined and in conducting the corporate insolvency
resolution process.
4-A. Choice of authorised representative.—(1) On an
examination of books of account and other relevant records
of the corporate debtor, the interim resolution professional
shall ascertain class(s) of creditors, if any.
(2) For representation of creditors in a class ascertained
under sub-regulation (1) in the committee, the interim
resolution professional shall identify three insolvency
professionals who are—
(a) not his relatives or related parties;
(aa) having their addresses, as registered with the Board,in
the State or Union Territory, as the case may be,which has
the highest number of creditors in the class as per their
addresses in the records of the corporate debtor:
Provided that where such State or Union Territory does not
have adequate number of insolvency professionals, the
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insolvency professionals having addresses in a nearby State
or Union Territory, as the case may be, shall be considered;
(b) eligible to be resolution professional under Regulation 3;
and
(c) willing to act as authorised representative of creditors in
the class.
(3) The interim resolution professional shall obtain the
consent of each insolvency professional identified under subregulation (2) to act as the authorised representative of
creditors in the class in Form AB of the Schedule.
6. Public announcement.—(1) An insolvency professional
shall make a public announcement immediately on his
appointment as an interim resolution professional.
Explanation:‘Immediately’ means not later than three days
from the date of his appointment.
(2) The public announcement referred to in sub-regulation
(1) shall:
(a) be in Form A of the Schedule;
(b) be published—
(i) in one English and one regional language newspaper with
wide circulation at the location of the registered office and
principal office, if any, of the corporate debtor and any other
location where in the opinion of the interim resolution
professional, the corporate debtor conducts material
business operations;
(ii) on the website, if any, of the corporate debtor; and
(iii) on the website, if any, designated by the Board for the
purpose,
(ba) state where claim forms can be downloaded or obtained
from, as the case may be;
(bb) offer choice of three insolvency professionals identified
under Regulation 4-A to act as the authorised representative
of creditors in each class; and
(c) provide the last date for submission of proofs of claim,
which shall be fourteen days from the date of appointment
of the interim resolution professional.
(3) The applicant shall bear the expenses of the public
announcement which may be reimbursed by the committee
to the extent it ratifies them.
7. Claims by operational creditors.—(1) A person
claiming to be an operational creditor, other than workman
or employee of the corporate debtor, shall submit claim with
proof to the interim resolution professional in person, by post
or by electronic means in Form B of the Schedule:
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Provided that such person may submit supplementary
documents or clarifications in support of the claim before the
constitution of the committee.
(2) The existence of debt due to the operational creditor
under this regulation may be proved on the basis of—
(a) the records available with an information utility, if any; or
(b) other relevant documents, including—
(i) a contract for the supply of goods and services with
corporate debtor;
(ii) an invoice demanding payment for the goods and
services supplied to the corporate debtor;
(iii) an order of a court or tribunal that has adjudicated upon
the non-payment of a debt, if any; or
(iv) financial accounts.
(v) copies of relevant extracts of Form GSTR-1 and Form
GSTR-3B filed under the provisions of the relevant laws
relating to Goods and Services Tax and the copy of e-way bill
wherever applicable:
Provided that provisions of this sub-clause shall not apply to
those creditors who do not require registration and to those
goods and services which are not covered under any law
relating to Goods and Services Tax.
8. Claims by financial creditors.—(1) A person claiming to
be a financial creditor, other than a financial creditor
belonging to a class of creditors, shall submit claim with
proof to the interim resolution professional in electronic form
in Form C of the Schedule:
Provided that such person may submit supplementary
documents or clarifications in support of the claim before the
constitution of the committee.
(2) The existence of debt due to the financial creditor may
be proved on the basis of—
(a) the records available with an information utility, if any; or
(b) other relevant documents, including—
(i) a financial contract supported by financial statements as
evidence of the debt;
(ii) a record evidencing that the amounts committed by the
financial creditor to the corporate debtor under a facility has
been drawn by the corporate debtor;
(iii) financial statements showing that the debt has not been
paid; or
(iv) an order of a court or tribunal that has adjudicated upon
the non-payment of a debt, if any.
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8-A. Claims by creditors in a class.—(1) A person
claiming to be a creditor in a class shall submit claim with
proof to the interim resolution professional in electronic form
in Form CA of the Schedule.
(2) The existence of debt due to a creditor in a class may be
proved on the basis of—
(a) the records available with an information utility, if any; or
(b) other relevant documents, including any—
(i) agreement for sale;
(ii) letter of allotment;
(iii) receipt of payment made; or
(iv) such other document, evidencing existence of debt.
(3) A creditor in a class may indicate its choice of an
insolvency professional, from amongst the three choices
provided by the interim resolution professional in the public
announcement, to act as its authorised representative.
9. Claims by workmen and employees.—(1) A person
claiming to be a workman or an employee of the corporate
debtor shall submit claim with proof to the interim resolution
professional in person, by post or by electronic means in
Form D of the Schedule:
Provided that such person may submit supplementary
documents or clarifications in support of the claim, on his
own or if required by the interim resolution professional,
before the constitution of the committee.
(2) Where there are dues to numerous workmen or
employees of the corporate debtor, an authorised
representative may submit one claim with proof for all such
dues on their behalf in Form E of the Schedule.
(3) The existence of dues to workmen or employees may be
proved by them, individually or collectively on the basis of—
(a) records available with an information utility, if any; or
(b) other relevant documents, including—
(i) a proof of employment such as contract of employment
for the period for which such workman or employee is
claiming dues;
(ii) evidence of notice demanding payment of unpaid dues
and any documentary or other proof that payment has not
been made; or
(iii) an order of a court or tribunal that has adjudicated upon
the non-payment of a dues, if any.
9-A. Claims by other creditors.—(1) A person claiming to
be a creditor, other than those covered under Regulations 7,
8, 8-A or 9, shall submit its claim with proof to the interim
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resolution professional or resolution professional in person,
by post or by electronic means in Form F of the Schedule.
(2) The existence of the claim of the creditor referred to in
sub-section (1) may be proved on the basis of—
(a) the records available in an information utility, if any, or
(b) other relevant documents sufficient to establish the
claim, including any or all of the following—
(i) documentary evidence demanding satisfaction of the
claim;
(ii) bank statements of the creditor showing non-satisfaction
of claim;
(iii) an order of court or tribunal that has adjudicated upon
non-satisfaction of claim, if any.
10. Substantiation of claims.—The interim resolution
professional or the resolution professional, as the case may
be, may call for such other evidence or clarification as he
deems fit from a creditor for substantiating the whole or part
of its claim.
11. Cost of proof.—A creditor shall bear the cost of proving
the debt due to such creditor.
12. Submission of proof of claims.—(1) Subject to subregulation (2), a creditor shall submit claim with proof on or
before the last date mentioned in the public announcement.
(2) A creditor, who fails to submit claim with proof within the
time stipulated in the public announcement, may submit the
claim with proof to the interim resolution professional or the
resolution professional, as the case may be, on or before the
ninetieth day of the insolvency commencement date.
(3) Where the creditor in sub-regulation (2) is a financial
creditor under Regulation 8, it shall be included in the
committee from the date of admission of such claim:
Provided that such inclusion shall not affect the validity of
any decision taken by the committee prior to such inclusion.
12-A. Updation of claim.—A creditor shall update its claim
as and when the claim is satisfied, partly or fully, from any
source in any manner, after the insolvency commencement
date.
13. Verification of claims.—(1) The interim resolution
professional or the resolution professional, as the case may
be, shall verify every claim, as on the insolvency
commencement date, within seven days from the last date
of the receipt of the claims, and thereupon maintain a list of
creditors containing names of creditors along with the
amount claimed by them, the amount of their claims
admitted and the security interest, if any, in respect of such
claims, and update it.
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(2) The list of creditors shall be—
(a) available for inspection by the persons who submitted
proofs of claim;
(b) available for inspection by members, partners,
directors and guarantors of the corporate debtor or their
authorised representatives;
(c) displayed on the website, if any, of the corporate
debtor;
(ca) filed on the electronic platform of the Board for
dissemination on its website:
Provided that this clause shall apply to every corporate
insolvency resolution process ongoing and commencing on
or after the date of commencement of the Insolvency and
Bankruptcy Board of India (Insolvency Resolution Process for
Corporate Persons) (Fifth Amendment) Regulations, 2020;
(d) filed with the Adjudicating Authority; and
(e) presented at the first meeting of the committee.
14. Determination of amount of claim.—(1) Where the
amount claimed by a creditor is not precise due to any
contingency or other reason, the interim resolution
professional or the resolution professional, as the case may
be, shall make the best estimate of the amount of the claim
based on the information available with him.
(2) The interim resolution professional or the resolution
professional, as the case may be, shall revise the amounts of
claims admitted, including the estimates of claims made
under sub-regulation (1), as soon as may be practicable,
when he comes across additional information warranting
such revision.”
22. Prior to amendment by Notification No.IBBI/2018-19/GN/REG013
dated 3rd July 2018, with effect from 4th July, 2018, Sub-Regulation (1) of
Regulation 12 read with Sub-Regulation (2) provided that a creditor shall
submit proof of claim on or before the last date mentioned in the public
announcement. Sub-Regulation (2) was amended with effect from 4th
July, 2018 and now reads “a creditor shall submit claim with proof on or
before the last date mentioned in the public announcement”.
17
23. The Regulations have to be read as a whole and not in a truncated
manner and interpreted in the light of the statutory provisions of the
IBC, as interpreted by this Court. This Court has time and again held
that the time lines stipulated in the IBC even for completion of
proceedings are directory and not mandatory.
24. In this case, claims were invited well before the 5th October, 2017
which was the last date for submission of claims. Under the
unamended provisions of Regulation 12(1), the Appellant was not
required to file any claim. Read with Regulation 10, the appellant would
only be required to substantiate the claim by production of such
materials as might be called for. The time stipulations are not
mandatory as is obvious from Sub-Regulation (2) of Regulation 14 which
enables the Interim Resolution Professional or the Resolution
Professional, as the case may be, to revise the amounts of claims
admitted, including the estimates of claims made under Sub-Regulation
(1) of the said Regulation as soon as might be practicable, when he
came across additional information warranting such revision.
25. In this case, at the cost of repetition, it may be noted that 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.
18
26. On behalf of the Appellant, it has been argued 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.
27. Mr. Tushar Mehta, learned Solicitor General of India appearing on
behalf of the Appellant with Mr. K.M. Nataraj, Additional Solicitor
General of India and Ms. Aastha Mehta, learned Advocate, referred to
Sections 3(30) and 3(31) of the IBC, set out herein below :-
“Section 3(30) and 3(31) of the Code read :
“3(30) “secured creditor” means a creditor in favour of
whom security interest is created;
3(31) “security interest” means right, title or 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:
Provided that security interest shall not include a
performance guarantee;”
28. The learned Solicitor General of India submitted that a reading of
Sections 3(30) and 3(31) of the IBC makes it clear that the finding of the
19
NCLAT that the State is not a secured creditor is erroneous and contrary
to the clear definition of secured creditor under the IBC.
29. As argued by the learned Solicitor General, 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.
30. The learned Solicitor General rightly argued that 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.
31. Mr. Nataraj, Additional Solicitor General submitted that the
Appellate Authority, NCLAT has held that the Tax Department of the
State does not fall within the meaning of “Secured Creditor”. The
NCLAT has, according to Mr. Nataraj, come to such a conclusion on the
erroneous premise that Section 48 of the GVAT Act, 2003, cannot prevail
over Section 53 of the IBC.
32. The learned ASG argued that, it was not the case of the Appellant
that Section 48 of the GVAT Act prevails over Section 53 of the IBC. It
20
was the case of the Appellant that the State falls within the purview of
“Secured Creditor”.
33. The 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.
34. The learned ASG 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.
35. The learned ASG emphatically argued that the RP was obliged to
receive, verify and collate claims and forward the same to the
Adjudicating Authority for approval. The learned ASG cited Swiss
Ribbons (P) Ltd. v. Union of India,
1
 where this Court held that the
Resolution Professional does not have adjudicatory powers to accept or
reject the claim. His duty is only to receive, verify and collate the
claims.
36. 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. It was the duty of the Resolution Professional to
examine, ensure and verify that the resolution plan conformed to the
parameters/requirements laid down under Section 30(2) of the IBC.
1 (2019) 4 SCC 17
21
Further, Section 29 of the IBC casts a statutory duty and/or obligation
on the Resolution Professional to prepare the information memo after
following the procedure laid down in the Court.
37. The learned ASG pointed out that under Section 29 of the IBC, the
Resolution Professional is required to prepare the Information
Memorandum. The Information Memorandum is mandatorily required
to contain the details as mentioned in Regulation 36(2) of the
Regulations, 2016.
38. The learned ASG referred to Regulation 36(2) of the Regulations,
2016 which is set out herein below :-
“36. Information memorandum
(2) The information memorandum shall contain the
following details of the corporate debtor -
(a) .....
(b) the latest annual financial statements;
(c) audited financial statements of the corporate debtor for
the last two financial years and provisional financial
statements for the current financial year made up to a date
not earlier than fourteen days from the date of the
application;
(d) ....
.......
(h) details of all material litigation and an ongoing
investigation or proceeding initiated by Government and
statutory authorities;
(i) ....
......
(I) other information, which the resolution professional
deems relevant to the committee.”
22
39. The 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.
40. In the case of Vishal Saxena & Anr. v. Swami Deen Gupta
Resolution Professional
2
, the NCLT took the view that the time
stipulation in Regulation 12 for submission of a claim is directory and
not mandatory. Similar view was also taken by the NCLT in its judgment
and order dated 10th June 2021 in Assistant Commissioner of
Customs v. Mathur Sabhapathy Vishwanathan
3
. The rejection of
the claim of the State is unsustainable in law.
41. 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.
2 (2020) SCC Online NCLT 2734
3 IBA/578/2019 NCLT, Chennai
23
42. In Ghanshyam Mishra & Sons (P) Ltd. v. Edelweiss Asset
Reconstruction Co. Ltd.
4
, cited by the learned Solicitor General, this
Court observed :-
“64. It could thus be seen, that the legislature has given
paramount importance to the commercial wisdom of CoC and
the scope of judicial review by adjudicating authority is
limited to the extent provided under Section 31 of the I&B
Code and of the appellate authority is limited to the extent
provided under sub-section (3) of Section 61 of the I&B Code,
is no more res integra.
65. Bare reading of Section 31 of the I&B Code would also
make it abundantly clear that once the resolution plan is
approved by the adjudicating authority, after it is satisfied,
that the resolution plan as approved by CoC meets the
requirements as referred to in sub-section (2) of Section 30, it
shall be binding on the corporate debtor and its employees,
members, creditors, guarantors and other stakeholders. Such
a provision is necessitated since one of the dominant
purposes of the I&B Code is revival of the corporate debtor
and to make it a running concern.
66. The resolution plan submitted by the successful
resolution applicant is required to contain various provisions
viz. provision for payment of insolvency resolution process
costs, provision for payment of debts of operational creditors,
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 creditors, if the amount to be distributed under the
resolution plan had been distributed in accordance with the
order of priority in sub-section (1) of Section 53, whichever is
higher. The resolution plan is also required to provide for the
payment of debts of financial creditors, who do not vote in
favour of the resolution plan, which also shall not be less than
the amount to be paid to such creditors in accordance with
sub-section (1) of Section 53 in the event of a liquidation of
the corporate debtor. Explanation 1 to clause (b) of subsection (2) of Section 30 of the I&B Code clarifies for the
removal of doubts that a distribution in accordance with the
provisions of the said clause shall be fair and equitable to
such creditors. The resolution plan is also required to provide
for the management of the affairs of the corporate debtor
after approval of the resolution plan and also the
implementation and supervision of the resolution plan. Clause
(e) of sub-section (2) of Section 30 of the I&B Code also casts
a duty on RP to examine that the resolution plan does not
contravene any of the provisions of the law for the time being
in force.”
4 (2021) 9 SCC 657
24
43. The learned Solicitor General rightly argued 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.
44. Section 61(3) of the IBC which stipulated the grounds for
challenge to the approval of a Resolution Plan, is set out hereinbelow for
convenience :-
“61. Appeals and Appellate Authority.—(1)…
(2) …
(3) An appeal against an order approving a resolution plan
under Section 31 may be filed on the following grounds,
namely—
(i) the approved resolution plan is in contravention of the
provisions of any law for the time being in force;
(ii) there has been material irregularity in exercise of the
powers by the resolution professional during the corporate
insolvency resolution period;
(iii) the debts owed to operational creditors of the corporate
debtor have not been provided for in the resolution plan in
the manner specified by the Board;
(iv) the insolvency resolution process costs have not been
provided for repayment in priority to all other debts; or
(v) the resolution plan does not comply with any other criteria
specified by the Board.”
45. As rightly argued by the learned Solicitor General, there can be no
question of acceptance of a Resolution Plan that is not in conformity
25
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.
46. 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 SubSection (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.
47. In Ebix Singapore Private Limited v. Committee of
Creditors of Educomp Solutions Limited and Another
5
, this Court
5 (2022) 2 SCC 401
26
affirmed that Resolution Plans would have to conform to the statutory
provisions of the IBC, and held: -
“147. In terms of Regulation 39(4), the RP shall
endeavour to submit the resolution plan approved by
the CoC before the adjudicating authority for its
approval under Section 31 IBC, at least fifteen days
before the maximum period for completion of CIRP.
Section 31(1) provides that the adjudicating authority
shall approve the resolution plan if it is satisfied that it
complies with the requirements set out under Section
30(2) IBC. Essentially, the adjudicating authority
functions as a check on the role of the RP to ensure
compliance with Section 30(2) IBC and satisfies itself
that the plan approved by the CoC can be effectively
implemented as provided under the proviso to Section
31(1) IBC. Once the resolution plan is approved by the
adjudicating authority, it becomes binding on the
corporate debtor and its employees, members,
creditors, guarantors and other stakeholders involved in
the resolution plan...”.
48. A resolution plan which does not meet the requirements of SubSection (2) of Section 30 of the IBC, would be invalid and not binding on
the Central Government, any State Government, any statutory or other
authority, any financial creditor, or other creditor to whom a debt in
respect of dues arising under any law for the time being in force
is owed. Such a resolution plan would not bind the State when there
are outstanding statutory dues of a Corporate Debtor.
49. Section 31(1) of the IBC which empowers the Adjudicating
Authority to approve a Resolution Plan uses the expression “it shall by
order approve the resolution plan which shall be binding...” subject to
the condition that the Resolution Plan meets the requirements of subsection (2) of Section 30. If a Resolution Plan meets the requirements,
the Adjudicating Authority is mandatorily required to approve the
27
Resolution Plan. On the other hand, Sub-section (2) of Section 31,
which enables the Adjudicating Authority to reject a Resolution Plan
which does not conform to the requirements referred to in sub-section
(1) of Section 31, uses the expression “may”.
50. 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.
51. If the established facts and circumstances require discretion to be
exercised in a particular way, discretion has to be exercised in that way.
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”.
52. 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.
28
53. In other words, 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.
54. In our considered view, 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.
55. In our considered view, the NCLAT clearly erred in its observation
that Section 53 of the IBC over-rides Section 48 of the GVAT Act.
Section 53 of the IBC begins with a non-obstante clause which reads :-
“Not withstanding anything to the contrary contained in
any law enacted by the Parliament or any State
Legislature for the time being in force, the proceeds
from the sale of the liquidation assets shall be
distributed in the following order of priority...........”
56. 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.
29
57. As observed above, 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.
58. We are constrained to hold that the Appellate Authority (NCLAT)
and the Adjudicating Authority erred in law in rejecting the
application/appeal of the appellant. As observed above, delay in filing a
claim cannot be the sole ground for rejecting the claim.
59. The appeals are allowed. The impugned orders are set aside. The
Resolution plan approved by the CoC is also set aside. The Resolution
Professional may consider a fresh Resolution Plan in the light of the
observations made above. However, this judgment and order will not,
prevent the Resolution Applicant from submitting a plan in the light of
the observations made above, making provisions for the dues of the
statutory creditors like the appellant.
60. There shall be no order as to costs.
…………………………………,J.
 [ INDIRA BANERJEE ]
…………………………………,J.
 [ A.S. BOPANNA ]
30
NEW DELHI;
SEPTEMBER 6, 2022
31

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