Supreme Law News

Supreme Court: Can govt dues be ignored in resolution plan ?

In State Tax Officer v. Rainbow, the Supreme Court held that the National Company Law Appellate Tribunal (NCLAT) had erred in law by rejecting an application by the Government of Gujarat for realising dues towards VAT from the corporate debtor.

The Supreme Court held that if a resolution plan ignored statutory demands payable to any state government or legal authority, it would be bound to reject the resolution plan.

The Court also highlighted that when a company is unable to pay its debts, including its statutory dues to the government or other authorities, liquidation and asset distribution under Section 53 of the IBC should be followed.

The Court had stated, "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."

The Court further emphasized that Section 53 of the IBC does not override Section 48 of the GVAT Act. Section 48 of the GVAT Act does not conflict with or contradict any provisions of the IBC.

The Court clarified that debts owed to a secured creditor, which includes the state under the GVAT Act, should rank equally with other specified debts, including workmen's dues for the 24 months preceding the liquidation commencement date.

It added “The State is a secured creditor under the GVAT Act. Section 3(30) of the IBC defines secured creditor to mean a creditor in favor of whom security interest is credited.

Such security interest could be created by the operation of law. The definition of secured creditor in the IBC does not exclude any Government or Governmental Authority.”

Consequently, the Supreme Court had set aside the judgment by NCLAT and allowed the appeal.

Case title: Sanjay Agarwal v. State Tax Officer

Citation: 2023 LiveLaw (SC) 939

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