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

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

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

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.

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.”

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

October,

2018 whereas the ‘Resolution Plan’ dated 26

May, 2018

along with Addendum dated 5

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

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

(iii) where a legal proceeding has been initiated in any court

against the decision of the Adjudicating Authority in respect

of a resolution plan;

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.

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;

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

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 :-

“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;

(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

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

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

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:

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.

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

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.

(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;

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”.

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.

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

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

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,

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

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;

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.”

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

, 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

. 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

42. In Ghanshyam Mishra & Sons (P) Ltd. v. Edelweiss Asset

Reconstruction Co. Ltd.

, 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

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

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

, this Court

5 (2022) 2 SCC 401

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

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.

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.

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 ]

NEW DELHI;

SEPTEMBER 6, 2022

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