21 九月 2022

Resolution Plan ignoring dues of State Government/Legal Authority to be rejected

The Supreme Court has held that if the Resolution Plan ignores the statutory demands payable to any State Government or legal authority, the Adjudicating Authority is bound to reject the same.

The Apex Court in State Tax Officer v. Rainbow Papers Limited [Judgement dated 6 September 2022] was of the view that 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.

Dealing with the questing of whether the provisions of Section 53 of the Insolvency and Bankruptcy Code, 2016 (‘IBC’) override Section 48 of the Gujarat Value Added Tax, 2003 (‘GVAT’), the Court stated that Section 48 of the GVAT Act is not contrary to or inconsistent with Section 53 or any other provisions of the IBC.

The Court said that 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.

The Court also noted that the definition of a secured creditor in the IBC does not exclude any Government or Governmental Authority.

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