Legal Insight + Business Instinct

Supreme Court: Ignorance of statutory dues payable will lead to the rejection of Resolution Plan submitted for the Corporate Debtor

Pratice Area

A Division Bench of the Hon’ble Supreme Court of India (SC), comprising of Hon’ble Ms. Justice Indira Banerjee and Hon’ble Mr. Justice A.S. Bopanna, dealt with the interplay between the provisions of Section 53 of the IBC and Section 48 of the Gujarat Value Added Tax, 2003 (GVAT Act), in State Tax Officer (1) v. Rainbow Papers Limited. The SC, vide its judgement dated 06.09.2022, ruled as follows: –

  1. 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, then such a resolution plan would have to be rejected. If a resolution plan altogether ignores the statutory claims of any state government or a legal authority, the Adjudicating Authority is bound to reject the said resolution plan.
  2. 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 also be created by operation of law. The definition of secured creditor in the IBC does not exclude any government or governmental authority.
  3. 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 IBC.
  4. The Committee of 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.
  5. There was no obligation on the part of the State to lodge a claim in respect of statutory dues, for which recovery proceedings have also been initiated.
  6. The time period for submission of claims, as provided in Regulation 12 of the CIRP Regulations, 2016, is directory in nature. Hence, delay in filing a claim cannot be the sole ground for rejecting such claim.

Disclaimer

By browsing this website, you agree that you are, of your own accord, seeking further information regarding Sirius Legal. No part of this website should be construed as an advertisement of or solicitation for our professional services. No information provided on the website shall be construed as legal advice.

This website has been designed only for the purposes of dissemination of basic information on Sirius Legal, as well as other information which is otherwise available on the internet, various public platforms and/or social media. Careful attention has been given to ensure that the information provided on the website is accurate and updated. However, Sirius Legal is not responsible for any reliance that a reader places on such information, and it shall not be liable for any loss or damage caused due to any inaccuracy in, or exclusion of, any information, or its interpretation thereof. In case of any legal issues, we recommend seeking legal advice.