State Tax Officer v Rainbow Papers Limited

Case Number: Civil Appeal No. 1661 OF 2020

Judges Name: Hon’ble Judges. Indira Banerjee J, A.S. Bopanna J

Order dated: 06.09.2022

Section 48 of the GVAT Act overrides the provisions of the Section 53 of IBC and an resolution plan approved by COC can be set aside if it is not as per provisions of IBC.

Facts of the case: 

  1. The appeal is preferred by State Tax Officer (“Appellant”) against M/s. Rainbow Papers Limited (“Respondent/ Corporate Debtor”). The Respondent is engaged in the business of manufacturing and selling crafts and oars. The Appellant assessed the Respondent for Value Added Tax (VAT) and Central Sales Tax (CST) under the Gujarat Value Added Tax, 2003 (“GVAT Act”), and a sum of Rs. 53,71,65,489/- was due from the Respondent. In respect of which, recovery proceedings were initiated in July 2016 and the land at Rajpur, belonging to the Corporate Debtor was attached. In the meanwhile, M/s. Neeraj Papers Private Limited, filed a petition before the Hon’ble National Company Law Tribunal, Ahmedabad Bench (“NCLT”) for initiating Corporate Insolvency Resolution Process (“CIRP”) under Insolvency and Bankruptcy Code, 2016 (“Code”).
  2. The NCLT admitted the Respondent into CIRP and an Interim Resolutional Professional was appointed. Pursuant to which, claims were invited and the Appellant submitted the claims. The claims of the Appellant was rejected and thereafter, a resolution plan was approved by the Committee of the Creditors (“COC”), leaving out the Appellant’s claims.
  3. The Appellant moved an application before the NCLT seeking inclusion of the claims as they are a secured creditor. The NCLT rejected the application. An appeal was preferred, before the Hon’ble National Company Law Appellate Tribunal (“NCLAT”), which was dismissed.
  4. Aggrieved by the Hon’ble NCLAT’s judgment and order, the Appellant has approached the Hon’ble Supreme Court.

Hon’ble Supreme Court observed/held as follows:

  • The Appellant contended that the Resolution Professional failed to examine the books of accounts properly as the claims are secured and failed in his mandatory duty.
  • It was also contended that the NCLAT was wrong in holding that the State is not secured creditor and the term ‘secured creditor’ is comprehensive and wide to cover all types of security interests.
  • Appellant’s statutory charge as per S. 48 of GVAT Act falls within the definition of security interest under IBC. Also, it was argued that the Resolution Professional can only verify, collate claims and a resolution plan that does not comply with S.31(2) of the Code cannot be accepted.
  • The Court discussed the decisions of Ebix Singapore P. Ltd. v COC of Educomp Solution Ltd. and Ghanshyam Mishra & Sons P. Ltd. v. Edelweiss Asset Reconstruction Co. Ltd. and observed that the Resolution Plan has to be in conformity with IBC provisions.
  • It was held that the S. 48 of GVAT Act is not contrary or inconsistent with Section 53 of the Code and under S.53(1)(b)(ii) of the Code, debts owed to a secured creditor would include State under the GVAT Act. The resolution plan approved by the COC was also set aside.

The Hon’ble Supreme Court allowed the appeal.


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