Insolvency Law: Is Govt a secured creditor & dues of income tax, GST, etc. are secured debt ?
One of the most contentious issues during insolvency process is whether dues of the Government like Income-Tax, Sales Tax, Value Added Tax etc. are secured debt and whether the Government is a secured creditor ?In its recent judgment, the National Company Law Appellate Tribunal has more and less cleared the cloud.In its recent ๐ท๐๐ฑ๐ด๐ฒ๐บ๐ฒ๐ป๐ ๐ฑ๐ฎ๐๐ฒ๐ฑ ๐ณ๐๐ต ๐๐ฒ๐ฏ., ๐ฎ๐ฌ๐ฎ๐ฏ ๐ถ๐ป ๐๐ผ๐บ๐ฝ๐ฎ๐ป๐ ๐๐ฝ๐ฝ๐ฒ๐ฎ๐น (๐๐ง) (๐๐ป๐๐ผ๐น๐๐ฒ๐ป๐ฐ๐) ๐ก๐ผ. ๐ฎ๐ฐ๐ฎ ๐ผ๐ณ ๐ฎ๐ฌ๐ฎ๐ฎ (๐ฃ๐ฟ๐ถ๐ป๐ฐ๐ถ๐ฝ๐ฎ๐น ๐๐ผ๐บ๐บ๐ถ๐๐๐ถ๐ผ๐ป๐ฒ๐ฟ ๐ผ๐ณ ๐๐ป๐ฐ๐ผ๐บ๐ฒ ๐ง๐ฎ๐ & ๐๐ป๐ฟ. ๐๐. ๐๐๐๐ฎ๐บ ๐๐ผ๐บ๐ฝ๐ฎ๐ป๐ ๐๐ป๐ฑ๐ถ๐ฎ ๐๐๐ฑ).The instant Appeal preferred under Section 61 of the Insolvency and Bankruptcy Code, 2016 (for short IBC) being aggrieved and dissatisfied by the order dated 20.01.2021 passed by the NCLT, Guwahati Bench in IA No. 10 of 2020 in C.P. (IB) No. 20/GB/2017 wherein the application i.e., I.A. No. 10 of 2020 filed by the Respondent herein /Corporate Debtor- Assam Company India Ltd. prayed for the following reliefs:i) Direction to be given to the respondents for stay of all the operations for attachment against the Applicant.ii) Setting aside of the order for attachment.iii) Recalling of the observation passed by the Honโble National Company Law Tribunal, Guwahati.iv) Ad-interim order in terms of prayers above.By which the Adjudicating Authority passed the following orders:โ20. Since the Respondents have filed its further claim by issuing attachment notices dated 28.01.2020 under Section 226 (3) of the Income Tax Act, 1961 attaching a sum of Rs. 6,71,05,730.00 towards Income Tax and Rs. 1,70,53,311.00 towards interest for the assessment year 2014-15 to the Banker of the applicant i.e., to the Chief Manager/Principal Officer, Allahabad Bank, Dibrugarh Bench i.e., after 15 months of the approval of the Resolution Plan, their claim at this stage cannot be entertained. Prayer made by the Resolution Applicant in this I.A. No. 10 of 2020 [in CPIB No. 20/GB/2017] is accepted to the following extent:(1) Attachment orders issued by the Income Tax Department are hereby set aside.(2) Company can operate the Bank Account without any obstructions from the Income Tax Department.(3) The Resolution Applicant / the Petitioner is hereby directed to strictly implement the Resolution Plan as approved in time without any violation.(4) The Petitioner is further directed to file a compliance report within 15 days of this order before the Registry stating that the Company has been paying all current statutory dues up-to-date especially, EPF, Income Tax, GST without delay.21. Accordingly, the IA No. 10 of 2020 is disposed of with the above observations and directions.โThe Ld. Counsel for the Appellants also placed reliance on the judgment of the Honโble Supreme Court in the case of โState Tax Officer (1) Vs. Rainbow Papers Limited, Civil Appeal No. 1661 of 2020 dated 06th September, 2022โ wherein Honโble Supreme Court held as hereunder:โ41. 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.42. In Ghanshyam Mishra & Sons (P) Ltd. v. Edelweiss Asset Reconstruction Co. Ltd., cited by the learned Solicitor General, this Court observed :- โ64. 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.NCLAT, New Delhi passed the following order :โTaking all the facts aforenoted, we are of the considered view that these facts have not been considered by the Adjudicating Authority while passing the impugned order. Admittedly, the judgment passed by the Honโble Supreme Court in the case of โState Tax Officer (1) Vs. Rainbow Papers Limited, Civil Appeal No. 1661 of 2020 dated 06th September, 2022โ, the dues of the Appellants are โGovernment duesโ and they are Secured Creditors.Thus, the impugned order dated 20.01.2021 passed by the Adjudicating Authority (National Company Law Tribunal, Guwahati Bench, Guwahati) in IA No. 10 of 2020 in C.P. (IB) No. 20/GB/2017 is hereby set aside and the matter is remitted back to the Adjudicating Authority (National Company Law Tribunal, Guwahati Bench, Guwahati) with a request to hear the parties (Appellants and Respondent herein) considering the aforesaid facts and also judgment passed by the Honโble Supreme Court in the case of โRainbow Papers Limited Case (supra)โ and pass fresh orders as expeditiously as possible.With these observations and directions, the instant Appeal is disposed of.Thus, in this matter,1.#NCLAT set aside an #NCLT order inter alia allowing Corporate Debtorโs application for setting aside the attachment order issued by the Income Tax Department.2. NCLAT emphasized on the position of law laid down by #Supreme Court of India in #RainbowPapers wherein it was held that the State was a secured creditor under the Gujarat Value Added Tax Act and that the definition of secured creditor in the IBC did not exclude any Government or Governmental Authority.Dr. Ajay Kummar Pandey
( LLM, MBA, (UK), PhD, AIMA, AFAI, PHD Chamber, ICTC, PCI, FCC, DFC, PPL, MNP, BNI, ICJ (UK), WP, (UK), MLE, Harvard Square, London, CT, Blair Singer Institute, (USA), Dip. in International Crime, Leiden University, the Netherlands )Advocate & Consultant, Supreme Court of India & High Courts4C Supreme Law International, Delhi, NCR. Mumbai & DubaiTel: M- 91- 9818320572. Email: editor.kumar@gmail.comWebsite: www.ajaykr.com, www.4Csupremelawint.com
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