Supreme Court of India
STATE TAX OFFICER (1)versusRAINBOW PAPERS LIMITED
- Citation
- 2022 INSC 927
- Decided
- 6 September 2022
- Disposal
- Appeal(s) allowed
- Bench
- INDIRA BANERJEE
Holding
The Supreme Court held that the State Tax Officer is a secured creditor under the IBC, Section 48 of the GVAT Act does not conflict with Section 53 of the IBC, and a claim cannot be dismissed merely for being filed after the prescribed deadline; therefore, the impugned orders and the approved resolution plan were set aside.
Summary
The State Tax Officer (appellant) claimed GST and CST dues of about Rs. 47.36 crore from Rainbow Papers Limited (respondent) during a corporate insolvency resolution process. The claim was filed after the deadline prescribed in the IBBI Regulations and was waived by the Resolution Professional, leading to the approval of a resolution plan that omitted the State's dues. The appellant argued that the State is a secured creditor under Section 3(30) of the Insolvency and Bankruptcy Code (IBC) and that Section 48 of the Gujarat Value Added Tax Act (GVAT) creates a first charge that cannot be overridden by Section 53 of the IBC. The Supreme Court held that the State is indeed a secured creditor, that Section 48 of the GVAT Act is not inconsistent with Section 53 of the IBC, and that delay alone cannot justify rejection of a claim. Consequently, the Court set aside the orders of the NCLT and NCLAT and also annulled the resolution plan, directing that a fresh plan consider the statutory dues.
Issues considered
- The extent to which Section 48 of the Gujarat Value Added Tax Act overrides or coexists with Section 53 of the Insolvency and Bankruptcy Code in a corporate insolvency resolution process.
- Whether the State Tax Officer qualifies as a "secured creditor" under Section 3(30) of the IBC.
- Whether a claim filed after the deadline prescribed in Regulation 12 of the IBBI Regulations can be rejected solely on the ground of delay.
- Whether a resolution plan that omits statutory dues of a government authority is valid and binding on that authority.
- Whether the NCLT and NCLAT erred in holding that Section 53 of the IBC prevails over Section 48 of the GVAT Act.
Legislation cited
- Companies Act, 2013
- Gujarat Value Added Tax Act, 2003s. 48
- Insolvency and Bankruptcy Code, 2016s. 15, s. 30, s. 31, s. 3(30), s. 3(31), s. 53, s. 61, s. 9
Subjects
insolvencybankruptcysecured creditorstatutory duesGujarat Value Added Taxresolution planNCLTNCLATSection 53 IBCSection 48 GVATcorporate debtorclaim filing deadlineIBBI Regulations
Judgment
808 [2022]
SUPREME COURT 13 S.C.R. 808
REPORTS [2022] 13 S.C.R.
A STATE TAX OFFICER (1)
v.
RAINBOW PAPERS LIMITED
(Civil Appeal No. 1661 of 2020)
B SEPTEMBER 06, 2022
[INDIRA BANERJEE AND A.S. BOPANNA, JJ.]
Insolvency and Bankruptcy Code, 2016: ss. 9, 15, 30, 31&53
– Insolvency and Bankruptcy Board of India (Insolvency Resolution
Process for Corporate Persons) Regulations, 2016 – rr. 4, 4A, 6 to
C
14 – Gujarat Value Added Tax, 2003 – s. 48 – s. 53 of the IBC, if
overrides s. 48 of GVAT – Certain amount due from the respondent
to the Sales Tax authorities towards CST and VAT – Recovery
proceedings initiated and respondent’s property attached – Petition
u/s. 9 for initiation of CIRP and Resolution professional-RP was
D appointed – Appellant then filed claim before the RP that certain
amount was due under the GVAT Act and RP informed the appellant
that its entire claim had been waived off – Challenge to, by the
appellant –NCLT rejected the application as not maintainable and
holding that the Government cannot claim first charge over the
property of the Corporate Debtor, as s. 48 which provides for first
E
charge on the property of a dealer in respect of any amount payable
by the dealer on account of tax, interest, penalty etc. under the said
Act, cannot prevail over s. 53 of the IBC – NCLAT dismissed the
appeal as also held that the claim of the State is belated – On appeal,
held: NCLAT erred in holding that s. 53 of the IBC overrides s. 48
F of GVAT – s48 of the GVAT Act is not contrary to or inconsistent
with Section 53 or any other provisions of the IBC – 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 – State
G
is a secured creditor under the GVAT Act – s. 3(30) of the IBC defines
secured creditor to mean a creditor in favour of whom security
interest is credited – Such security interest could be created by
operation of law - Definition of secured creditor in the IBC does
not exclude any Government or Governmental Authority –
H
808
STATE TAX OFFICER (1) v. RAINBOW PAPERS LIMITED 809
Furthermore, delay in filing a claim cannot be the sole ground for A
rejecting the claim–Impugned orders set aside.
Allowing the appeal, the Court
HELD 1.1 The Regulations have to be read as a whole and
not in a truncated manner and interpreted in the light of the
statutory provisions of the IBC. The time lines stipulated in the B
IBC even for completion of proceedings are directory and not
mandatory. [Para 23][831-C-D]
1.2 The claims were invited well before the 5th October,
2017 which was the last date for submission of claims. Under the
unamended provisions of Regulation 12(1), the appellant was not C
required to file any claim. Read with Regulation 10, the appellant
would only be required to substantiate the claim by production of
such materials as might be called for. The time stipulations are
not mandatory as is obvious from Sub-Regulation (2) of Regulation
14 which enables the Interim Resolution Professional or the D
Resolution Professional, as the case may be, to revise the
amounts of claims admitted, including the estimates of claims
made under Sub-Regulation (1) of the said Regulation as soon as
might be practicable, when he came across additional information
warranting such revision. [Para 24][831-D-F]
E
1.3 There was no obligation on the part of the State to lodge
a claim in respect of dues which are statutory dues for which
recovery proceedings have also been initiated. The appellants
were never called upon to produce materials in connection with
the claim raised by the Appellants towards statutory dues. The
Adjudicating Authority as well as the Appellate Authority/NCLAT F
misconstrued the Regulations. [Para 25][831-G]
1.4 The Adjudicating Authority (NCLT) and the Appellate
Authority (NCLAT) have held that the claim of the State is
belated. Regulation 12 of the 2016 Regulations deals with the
time period for submission of a claim along with proof, as stipulated G
in the public announcement under Section 15 of the IBC. The
time period is, however, not mandatory but only directory. [Para
39][834-G-H]
H
810 SUPREME COURT REPORTS [2022] 13 S.C.R.
A 1.5 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
B
meet the requirements of Section 30(2), the same cannot be
approved. [Para 41][835-C]
1.6 When a grievance was made before the Adjudicating
Authority with regard to a Resolution Plan, the Adjudicating
Authority was required to examine if the Resolution Plan met
C the requirements of Section 30(2) of the IBC. The word “satisfied”
used in Section 31(1) contemplates a duty on the Adjudicating
Authority to examine the Resolution Plan. The Resolution Plan
cannot be approved by way of an empty formality. [Para 43][836-
F-G]
D 1.7 There can be no question of acceptance of a Resolution
Plan that is not in conformity with the statutory provisions of
Section 31(2) of the IBC. Section 30(2) (b) of the IBC, casts an
obligation on the Resolution Professional to examine each
resolution plan received by him and to confirm that such resolution
E plan provides for the payment of dues of operational creditors,
as specified by the Board, which shall not be less than the amount
to be paid to such creditors, in the event of liquidation of the
Corporate Debtor under Section 53, or the amount that would
have been paid to such operational creditors, if the amount to be
distributed under the resolution plan had been distributed in
F accordance with the order of priority in Sub-section 2 of Section
53, whichever was higher, and provided for the payment of debts
of financial creditors, who did not vote in favour of the resolution
plan, in such manner as might be specified by the Board. [Para
45][837-D-F]
G 1.8 Under Section 31 of the IBC, a resolution plan as
approved by the Committee of Creditors under Sub-Section (4)
of Section 30 might be approved by the Adjudicating Authority
only if the Adjudicating Authority is satisfied that the resolution
plan as approved by the Committee of Creditors meets the
H
STATE TAX OFFICER (1) v. RAINBOW PAPERS LIMITED 811
requirements as referred to in Sub- Section (2) of Section 30 of A
the IBC. The condition precedent for approval of a resolution
plan is that the resolution plan should meet the requirements of
Sub-Section (2) of Section 30 of the IBC.[Para 46][837-G-H]
1.9 A resolution plan which does not meet the requirements
of Sub- Section (2) of Section 30 of the IBC, would be invalid and B
not binding on the Central Government, any State Government,
any statutory or other authority, any financial creditor, or other
creditor to whom a debt in respect of dues arising under any law
for the time being in force is owed. Such a resolution plan would
not bind the State when there are outstanding statutory dues of a
Corporate Debtor. [Para 48][838-E-F] C
1.10 Section 31(1) of the IBC which empowers the
Adjudicating Authority to approve a Resolution Plan uses the
expression “it shall by order approve the resolution plan which
shall be binding...” subject to the condition that the Resolution
Plan meets the requirements of sub- section (2) of Section 30. If D
a Resolution Plan meets the requirements, the Adjudicating
Authority is mandatorily required to approve the Resolution Plan.
On the other hand, Sub-section (2) of Section 31, which enables
the Adjudicating Authority to reject a Resolution Plan which does
not conform to the requirements referred to in sub-section (1) of E
Section 31, uses the expression “may”.[Para 49][838-F-H]
1.11 Ordinarily, the use of the word “shall” connote a
mandate/binding direction, while use of the expression “may”
connote discretion. If statute says, a person may do a thing, he
may also not do that thing. Even if Section 31(2) is construed to F
confer discretionary power on the Adjudicating Authority to reject
a Resolution Plan, it has to be kept in mind that discretionary
power cannot be exercised arbitrarily, whimsically or without
proper application of mind to the facts and circumstances which
require discretion to be exercised one way or the other. [Para
50][839-A-B] G
1.12 If the established facts and circumstances require
discretion to be exercised in a particular way, discretion has to
be exercised in that way. If a Resolution Plan is ex facie not in
H
812 SUPREME COURT REPORTS [2022] 13 S.C.R.
A conformity with law and/or the provisions of IBC and/or the Rules
and Regulations framed thereunder, the Resolution would have
to be rejected. It is also a well settled principle of interpretation
that the expression “may”, if circumstances so demand can be
construed as “Shall”. [Para 51][839-C]
B 1.13 If the Resolution Plan ignores the statutory demands
payable to any State Government or a legal authority, altogether,
the Adjudicating Authority is bound to reject the Resolution Plan.
In other words, if a company is unable to pay its debts, which
should include its statutory dues to the Government and/or other
authorities and there is no plan which contemplates dissipation
C of those debts in a phased manner, uniform proportional
reduction, the company would necessarily have to be liquidated
and its assets sold and distributed in the manner stipulated in
Section 53 of the IBC. [Para 52, 53][839-D-E]
1.15 The Committee of Creditors, which might include
D 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. [Para 54][839-F]
1.16 NCLAT erred in its observation that s. 53 of the IBC
E overrides s. 48 of GVAT. Section 48 of the GVAT Act is not
contrary to or inconsistent with Section 53 or any other provisions
of the IBC. 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
F on account of workman’s dues for a period of 24 months preceding
the liquidation commencement date. [Paras 55,56][839-G; 840-
B]
1.17 The State is a secured creditor under the GVAT Act.
Section 3(30) of the IBC defines secured creditor to mean a
G creditor in favour of whom security interest is credited. Such
security interest could be created by operation of law. The
definition of secured creditor in the IBC does not exclude any
Government or Governmental Authority. [Para 57][840-C]
1.18 The Appellate Authority (NCLAT) and the Adjudicating
H Authority erred in law in rejecting the application/appeal of the
STATE TAX OFFICER (1) v. RAINBOW PAPERS LIMITED 813
appellant. Delay in filing a claim cannot be the sole ground for A
rejecting the claim. [Para 58][840-D]
1.19 The impugned orders are set aside. The Resolution
plan approved by the CoC is also set aside. [Para 59][840-E]
Swiss Ribbons (P) Ltd. v. Union of India (2019) 4 SCC B
17 : [2019] 3 SCR 535; Vishal Saxena & Anr. v. Swami
Deen Gupta Resolution Professional (2020) SCC
Online NCLT 2734; Assistant Commissioner of Customs
v. Mathur SabhapathyVishwanathan IBA/578/2019;
NCLT, Chennai Ghanshyam Mishra & Sons (P) Ltd. v.
Edelweiss Asset Reconstruction Co. Ltd. (2021) 9 SCC C
657; Ebix Singapore Private Limited v. Committee of
Creditors of Educomp Solutions Limited and Another
(2022) 2 SCC 401 – referred to.
Case Law Reference
D
[2019] 3 SCR 535 referred to Para 35
(2021) 9 SCC 657 referred to Para 42
(2022) 2 SCC 401 referred to Para 42
E
CIVIL APPELLATE JURISDICTION : Civil Appeal No.1661
of 2020.
From the Judgment and Order dated 19.12.2019 of the National
Company Law Appellate Tribunal, New Delhi in Company Appeal (AT)
(Insolvency) No.404 of 2019. F
With
Civil Appeal No.2568 of 2020.
Tushar Mehta, SG, K. M. Nataraj, ASG, Ms. Aastha Mehtra, Ms.
Vishakha, Ms. Prerana Mohapatra, Vinayak Sharma, Ms. Indira Bhaskar, G
Ms. Deepanwita Priyanka, Advs. for the Appellant.
Ankur Kashyap, Ayush Agarwala, Aditi Mittal, Ms. Arushi
Kaulaskar, Ms. Swati Khanvisara, Aman Bajaj, Arnav Narain, Rajesh
Srivastava, Neeraj Datt Gaur, Gaurav Verma, Advs. for the Respondent.
H
814 SUPREME COURT REPORTS [2022] 13 S.C.R.
A The Judgment of the Court was delivered by
INDIRA BANERJEE, J.
These appeals under Section 62 of the Insolvency and Bankruptcy
Code, 2016, hereinafter referred to as ‘IBC’, is against a judgment and
order dated 19th December, 2019, passed by the National Company Law
B Appellate Tribunal (NCLAT) dismissing Company Appeal
(AT)(Insolvency) No. 404 of 2019 filed by the Appellant, against an
order dated 27th February 2019 of the Adjudicating Authority, rejecting
the application being I.A No.224/271/272/337 of 2018and P-01 of 2019
in C.P. No. (IB) 88/9/NCLT/AHM/2017 filed by the appellants and
C holding that the Government cannot claim first charge over the property
of the Corporate Debtor, as Section 48 of the Gujarat Value Added Tax,
2003, hereinafter referred to as the “GVAT Act”, which provides for
first charge on the property of a dealer in respect of any amount payable
by the dealer on account of tax, interest, penalty etc. under the said
GVAT Act,cannot prevail over Section 53 of the IBC.
D
2. The short question raised by the appellant in this appeal is,
whether the provisions of the IBC and, in particular, Section 53 thereof,
overrides Section 48 of the GVAT Act which is set out herein below for
convenience:-
“48. Tax to be first charge on property.—Notwithstanding
E anything to the contrary contained in any law for the time
being in force, any amount payable by a dealer or any other
person on account of tax, interest or penalty for which he is
liable to pay to the Government shall be a first charge on the
property of such dealer, or as the case maybe, such person.”
F 3. The respondent, a company within the meaning of the
Companies Act, 2013 is engaged in the business of manufacture and
sale of Crafts and Oars within and outside the State of Gujarat since
16th April, 1990.
4. The appellant has, from time to time, been assessed for Value
G Added Tax (VAT) and Central Sales Tax (CST) under the GVAT Act. It
is stated that an amount of Rs.53,71,65,489/- is due from the Respondent
to the Sales Tax authorities towards CST and VAT, as per the statement
enclosed at Page 44 of the Paper Book.
5. On or about 8th July, 2016, recovery proceedings were initiated
H against the respondent, in respect of its dues for the year 2011-2012, and
STATE TAX OFFICER (1) v. RAINBOW PAPERS LIMITED 815
[INDIRA BANERJEE, J.]
the appellant attached the property of the respondent being land at Survey A
No.2379 and 2381 situated at Rajpur, Taluka Kadi on 8th October, 2018.
6. One Neeraj Papers Private Limited, as operational creditor of
the respondent, filed Company Petition (IB) No.88 of 2017under Section
9 of the IBCbefore Ahmedabad Bench of the National Company Law
Tribunal (NCLT), for initiation of the Corporate Insolvency Resolution B
Process (CIRP) against the respondent.
7. By an order dated 12th September, 2017, the said Company
Petition [Company Petition (IB) No. 88 of 2017] filed by the said Neeraj
Papers Private Limited was admitted. One George Samuel was appointed
Interim Resolution Professional (IRP) on 22nd September, 2017. C
8. After appointment of the said George Samuel as IRP, claims
were invited from Creditors under Section 15 of the IBC by issuance of
newspaper publications. The last date for submission of claims was 5th
October 2017.
9. After receipt of claims, a Committee of Creditors (CoC) was D
constituted on 10th October 2017. At its first meeting, the CoC passed a
resolution to replace the IRP. Accordingly,Ramachandra D. Choudhary,
a Chartered Accountant, was appointed as Resolution Professional (RP).
The appointment of Mr. Choudhary was approved by the NCLT by an
order dated 6th November 2017.
E
10. The appellant filed a claim before the RP in the requisite Form
B, claiming that Rs.47.36 crores (approximately), was due and payable
by the respondent to the appellant, towards its dues under the GVAT
Act. The claim was filed beyond time.
11. After admission of the CIRP and appointment of the RP, one F
Kushal Limited submitted a Resolution Plan. Various Creditors had
objected to the Resolution Plan.
12. The Tourism Finance Corporation of India Limited, a financial
creditor of the Respondent-Corporate Debtor moved an interlocutory
application No.273 of 2018 contending that the Tourism Finance G
Corporation of India Limited had wrongly been categorised as an
unsecured financial creditor.
13. By an order Sr. No.JCCT/Div-4/Mahesana/NCLT/case/
O.W.No.3090 dated 22nd October, 2018, the appellant called upon the
RP to confirm the claim of the appellant towards outstanding tax dues. H
816 SUPREME COURT REPORTS [2022] 13 S.C.R.
A 14. By a letter dated 22nd October, 2018, the Resolution Professional
informed the appellant that the entire claim of the appellant had been
waived off. The order of the RP was conveyed to the appellant by an
email dated 6th November, 2018.
15. On or about 20th December, 2018, the appellant challenged
B the Resolution Plan by making an application being I.A No. P-01 of
2019before the Ahmedabad Bench of the NCLT contending that
Government dues could not be waived off. The appellant prayed for
payment of total dues of Rs.47,35,72,314/- towards VAT/CST on the
ground that the Sales Tax Officer was a secured creditor.
C 16. By an order dated 27th February, 2019 in IA No. 224/271/272/
337 of 2018 and P-01 of 2019 in CP No.(IB) 88 of 2017,the Adjudicating
Authority being the Ahmedabad Bench of the NCLT rejected the
application made by the appellant as not maintainable.The Adjudicating
Authority (NCLT) Ahmedabad held:-
D “13.The Resolution Applicant again filed the amended
resolution plan on 26.05.2018. On scrutiny RP issued
certificate on 28.05.2018 in compliance of the Regulation
39(2). Accordingly, RP/the applicant issued notice dated
29.05.2018 for convening the eighth and final meeting of
CoC on 04.06.2018. In the said meeting, CoC sought certain
E changes in the plan. In view of that, the Resolution Applicant
was permitted to provide the addendum to the revised plan
within a period of one (1) day which was accepted and duly
acted upon by the Resolution applicant.
14. The said amended revised resolution plan along with the
F addendum dated 05.06.2018 was placed for e-voting before
the members of the CoC which took place on two (2) days i.e.
on 06.06.2018 and 07.06.2018. The CoC in their aforesaid
e-voting resolved to approve the resolution plan along with
the addendum with majority of 79.79% voting share in favour
G of the Resolution Applicant.
xxx xxx xxx
16. On filing of the application by the RP under Section 30(6)
read with section 31 of the Code, notices were issued to the
CoC and suspended management. CoC approved and
H conceded to the fact of filing application by the RP under
STATE TAX OFFICER (1) v. RAINBOW PAPERS LIMITED 817
[INDIRA BANERJEE, J.]
section 33(6) of the Code and have supported the argument A
advanced by the Ld. Counsel of the RP. No representation
received from the suspended management.”
17. On or about 8th April, 2019, the appellant filed an appeal before
the NCLAT against the aforesaid order dated 27th February 2019 of the
Adjudicating Authority, under Section 61 of the IBC. The appeal has B
been dismissed by the NCLAT by the judgment and order impugned.
18. The NCLAT held:-
“34.The Adjudicating Authority noticed that the Appellant
approached the ‘Resolution Professional’ on 22 nd October,
2018 whereas the ‘Resolution Plan’ dated 26 th May, 2018 C
along with Addendum dated 5th June, 2018 was approved by
the ‘Committee of Creditors’ with voting majority of 72.79
per cent in favour of the ‘Resolution Plan’. Thus, the claim
was made by the Appellant at a much belated stage not only
before the ‘Resolution Professional’ but also before the
Adjudicating Authority. D
35. We find that the Appellant has not filed claim within time.
It approached the ‘Resolution Professional’ at belated stage
after approval of the ‘Resolution Plan’ by the Adjudicating
Authority.
36. Learned counsel for the ‘Resolution Professional’ E
submitted that the claim of the Appellant- ‘State Tax Officer
(1)’ comes within the meaning of ‘Operational Debt’ as defined
under Section 5(21). The claim of the Appellant also does not
fall within the meaning of ‘Secured Creditor’ as defined under
Section 3(30) read with Section 3(31) of the I&B Code.
F
***
38. In view of Statement of Objects and Reasons of the ‘I&B
Code’ read with Section 53 of the ‘I&B Code’, the Government
cannot claim first charge over the property of the ‘Corporate
Debtor’. Section 48 cannot prevail over Section 53. Therefore,
the Appellant – ‘State Tax Officer-(1)’ do not come within the G
meaning of ‘Secured Creditor’ as defined under Section 3(30)
read with Section 3(31) of the I&B Code’.
39. Further, as ‘Sales Tax Department’ filed its claim at belated
stage after the plan had been approved by the ‘Committee of
H
818 SUPREME COURT REPORTS [2022] 13 S.C.R.
A Creditors’, the ‘Resolution Professional’ had no jurisdiction
to entertain the same and rightly not entertained.”
19. Sections 30 and 31 of the IBC are set out hereinbelow for
convenience:-
“30. Submission of resolution plan.—(1) A resolution applicant
B may submit a resolution plan along with an affidavit stating
that he is eligible under Section 29-A to the resolution
professional prepared on the basis of the information
memorandum.
(2) The resolution professional shall examine each resolution
C plan received by him to confirm that each resolution plan—
(a) provides for the payment of insolvency resolution process
costs in a manner specified by the Board in priority to the
payment of other debts of the corporate debtor;
(b) provides for the payment of debts of operational creditors
D
in such manner as may be specified by the Board which shall
not be less than—
(i) the amount to be paid to such creditors in the event of a
liquidation of the corporate debtor under Section 53; or
E (ii) the amount that would have been paid to such creditors,
if the amount to be distributed under the resolution plan had
been distributed in accordance with the order of priority in
sub-section (1) of Section 53,
whichever is higher, and provides for the payment of debts of
F financial creditors, who do not vote in favour of the resolution
plan, in such manner as may be specified by the Board, which
shall not be less than the amount to be paid to such creditors
in accordance with sub-section (1) of Section 53 in the event
of a liquidation of the corporate debtor.
G Explanation 1.—For the removal of doubts, it is hereby
clarified that a distribution in accordance with the provisions
of this clause shall be fair and equitable to such creditors.
Explanation 2.—For the purposes of this clause, it is hereby
declared that on and from the date of commencement of the
Insolvency and Bankruptcy Code (Amendment) Act, 2019, the
H
STATE TAX OFFICER (1) v. RAINBOW PAPERS LIMITED 819
[INDIRA BANERJEE, J.]
provisions of this clause shall also apply to the corporate A
insolvency resolution process of a corporate debtor—
(i) where a resolution plan has not been approved or rejected
by the Adjudicating Authority;
(ii) where an appeal has been preferred under Section 61 or
Section 62 or such an appeal is not time barred under any B
provision of law for the time being in force; or
(iii) where a legal proceeding has been initiated in any court
against the decision of the Adjudicating Authority in respect
of a resolution plan;
C
(c) provides for the management of the affairs of the corporate
debtor after approval of the resolution plan;
(d) the implementation and supervision of the resolution plan;
(e) does not contravene any of the provisions of the law for
the time being in force; D
(f) conforms to such other requirements as may be
specified by the Board.
Explanation.—For the purposes of clause (e), if any approval
of shareholders is required under the Companies Act, 2013
or any other law for the time being in force for the E
implementation of actions under the resolution plan, such
approval shall be deemed to have been given and it shall not
be a contravention of that Act or law.
(3) The resolution professional shall present to the committee
of creditors for its approval such resolution plans which F
confirm the conditions referred to in sub-section (2).
(4) The committee of creditors may approve a resolution plan
by a vote of not less than sixty-six per cent of voting share of
the financial creditors, after considering its feasibility and
viability the manner of distribution proposed, which may take G
into account the order of priority amongst creditors as laid
down in sub-section (1) of Section 53,including the priority
and value of the security interest of a secured creditor, and
such other requirements as may be specified by the Board:
H
820 SUPREME COURT REPORTS [2022] 13 S.C.R.
A Provided that the committee of creditors shall not approve a
resolution plan, submitted before the commencement of the
Insolvency and Bankruptcy Code (Amendment) Ordinance,
2017 (Ord. 7 of 2017), where the resolution applicant is
ineligible under Section 29-A and may require the resolution
professional to invite a fresh resolution plan where no other
B
resolution plan is available with it:
Provided further that where the resolution applicant referred
to in the first proviso is ineligible under clause (c) of Section
29-A, the resolution applicant shall be allowed by the
committee of creditors such period, not exceeding thirty days,
C to make payment of overdue amounts in accordance with the
proviso to clause (c) of Section 29-A:
Provided also that nothing in the second proviso shall be
construed as extension of period for the purposes of the
proviso to sub-section (3) of Section 12, and the corporate
D insolvency resolution process shall be completed within the
period specified in that sub-section.
Provided also that the eligibility criteria in Section 29-A as
amended by the Insolvency and Bankruptcy Code
(Amendment) Ordinance, 2018 (Ord. 6 of 2018) shall apply
E to the resolution applicant who has not submitted resolution
plan as on the date of commencement of the Insolvency and
Bankruptcy Code (Amendment) Ordinance, 2018.
(5) The resolution applicant may attend the meeting of the
committee of creditors in which the resolution plan of the
F applicant is considered:
Provided that the resolution applicant shall not have a right
to vote at the meeting of the committee of creditors unless
such resolution applicant is also a financial creditor.
(6) The resolution professional shall submit the resolution plan
G
as approved by the committee of creditors to the Adjudicating
Authority.
31. Approval of resolution plan.—(1) If the Adjudicating
Authority is satisfied that the resolution plan as approved by
the committee of creditors under sub-section (4) of Section
H
STATE TAX OFFICER (1) v. RAINBOW PAPERS LIMITED 821
[INDIRA BANERJEE, J.]
30 meets the requirements as referred to in sub-section (2) of A
Section 30, it shall by order approve the resolution plan which
shall be binding on the corporate debtor and its employees,
members, creditors, including the Central Government, any
State Government or any local authority to whom a debt in
respect of the payment of dues arising under any law for the
B
time being in force, such as authorities to whom statutory
dues are owed, guarantors and other stakeholders involved
in the resolution plan:
Provided that the Adjudicating Authority shall, before passing
an order for approval of resolution plan under this sub-
section, satisfy that the resolution plan has provisions for its C
effective implementation.
(2) Where the Adjudicating Authority is satisfied that the
resolution plan does not confirm to the requirements referred
to in sub-section (1), it may, by an order, reject the resolution
plan. D
(3) After the order of approval under sub-section (1),—
(a) the moratorium order passed by the Adjudicating Authority
under Section 14 shall cease to have effect; and
(b) the resolution professional shall forward all records
E
relating to the conduct of the corporate insolvency resolution
process and the resolution plan to the Board to be recorded
on its database.
(4) The resolution applicant shall, pursuant to the resolution
plan approved under sub-section (1), obtain the necessary
approval required under any law for the time being in force F
within a period of one year from the date of approval of the
resolution plan by the Adjudicating Authority under sub-
section (1) or within such period as provided for in such law,
whichever is later:
Provided that where the resolution plan contains a provision G
for combination, as referred to in Section 5 of the Competition
Act, 2002 (12 of 2003), the resolution applicant shall obtain
the approval of the Competition Commission of India under
that Act prior to the approval of such resolution plan by the
committee of creditors.” H
822 SUPREME COURT REPORTS [2022] 13 S.C.R.
A 20. Section 53 of the IBC, which provides for the mode and manner
for distribution of the proceeds of sale of the assets of a Corporate
Debtor in liquidation, is set out hereinbelow for convenience :-
“53. Distribution of assets.—(1) Notwithstanding anything to
the contrary contained in any law enacted by the Parliament
B or any State Legislature for the time being in force, the
proceeds from the sale of the liquidation assets shall be
distributed in the following order of priority and within such
period and in such manner as may be specified, namely—
(a)the insolvency resolution process costs and the liquidation
C costs paid in full;
(b)the following debts which shall rank equally between and
among the following—
(i) workmen’s dues for the period of twenty-four months
preceding the liquidation commencement date; and
D
(ii) debts owed to a secured creditor in the event such secured
creditor has relinquished security in the manner set out in
Section 52;
(c) wages and any unpaid dues owed to employees other than
workmen for the period of twelve months preceding the
E
liquidation commencement date;
(d) financial debts owed to unsecured creditors;
(e) the following dues shall rank equally between and among
the following :—
F (i) any amount due to the Central Government and the State
Government including the amount to be received on account
of the Consolidated Fund of India and the Consolidated Fund
of a State, if any, in respect of the whole or any part of the
period of two years preceding the liquidation commencement
G date;
(ii) debts owed to a secured creditor for any amount unpaid
following the enforcement of security interest;
(f) any remaining debts and dues;
(g) preference shareholders, if any; and
H
STATE TAX OFFICER (1) v. RAINBOW PAPERS LIMITED 823
[INDIRA BANERJEE, J.]
(h) equity shareholders or partners, as the case may be. A
(2) Any contractual arrangements between recipients under
sub-section (1) with equal ranking, if disrupting the order of
priority under that sub-section shall be disregarded by the
liquidator.
(3) The fees payable to the liquidator shall be deducted B
proportionately from the proceeds payable to each class of
recipients under sub-section (1), and the proceeds to the
relevant recipient shall be distributed after such deduction.
Explanation.—For the purpose of this section—
C
(i) it is hereby clarified that at each stage of the distribution
of proceeds in respect of a class of recipients that rank
equally, each of the debts will either be paid in full, or will be
paid in equal proportion within the same class of recipients,
if the proceeds are insufficient to meet the debts in full; and
D
(ii) the term “workmen’s dues” shall have the same meaning
as assigned to it in Section 326 of the Companies Act, 2013
(18 of 2013).”
21. In exercise of power conferred under Sections 5, 7, 9, 14, 15,
17, 18, 21, 24, 25, 29, 30, 196 and 208 read with Section 240 of the IBC,
E
the Insolvency and Bankruptcy Board of India, hereinafter referred to
as Board, has framed the Insolvency and Bankruptcy Board of India
(Insolvency Resolution Process for Corporate Persons) Regulations,
2016, hereinafter referred to as “the 2016 Regulations”. Some of the
relevant provisions of the 2016 Regulations are extracted hereinbelow
for convenience :- F
“4. Access to books.—(1) Without prejudice to Section 17(2)(d),
the interim resolution professional or the resolution
professional, as the case may be, may access the books of
account, records and other relevant documents and
information, to the extent relevant for discharging his duties G
under the Code, of the corporate debtor held with—
(a) depositories of securities;
(b) professional advisors of the corporate debtor;
(c) information utilities; H
824 SUPREME COURT REPORTS [2022] 13 S.C.R.
A (d) other registries that records the ownership of assets;
(e) members, promoters, partners, board of directors and joint
venture partners of the corporate debtor; and
(f) contractual counterparties of the corporate debtor.
(2) The personnel of the corporate debtor, its promoters or
B
any other person associated with the management of the
corporate debtor shall provide the information within such
time and in such format as sought by the interim resolution
professional or the resolution professional, as the case may
be.
C (3) The creditor shall provide to the interim resolution
professional or resolution professional, as the case may be,
the information in respect of assets and liabilities of the
corporate debtor from the last valuation report, stock
statement, receivables statement, inspection reports of
D properties, audit report, stock audit report, title search report,
technical officers report, bank account statement and such
other information which shall assist the interim resolution
professional or the resolution professional in preparing the
information memorandum, getting valuation determined and
in conducting the corporate insolvency resolution process.
E
4-A. Choice of authorised representative.—(1) On an
examination of books of account and other relevant records
of the corporate debtor, the interim resolution professional
shall ascertain class(s) of creditors, if any.
(2) For representation of creditors in a class ascertained under
F sub-regulation (1) in the committee, the interim resolution
professional shall identify three insolvency professionals who
are—
(a) not his relatives or related parties;
(aa) having their addresses, as registered with the Board,in
G
the State or Union Territory, as the case may be,which has
the highest number of creditors in the class as per their
addresses in the records of the corporate debtor:
Provided that where such State or Union Territory does not
have adequate number of insolvency professionals, the
H
STATE TAX OFFICER (1) v. RAINBOW PAPERS LIMITED 825
[INDIRA BANERJEE, J.]
insolvency professionals having addresses in a nearby State A
or Union Territory, as the case may be, shall be considered;
(b) eligible to be resolution professional under Regulation 3;
and
(c) willing to act as authorised representative of creditors in
the class. B
(3) The interim resolution professional shall obtain the consent
of each insolvency professional identified under sub-
regulation (2) to act as the authorised representative of
creditors in the class in Form AB of the Schedule.
C
6. Public announcement.—(1) An insolvency professional
shall make a public announcement immediately on his
appointment as an interim resolution professional.
Explanation:‘Immediately’ means not later than three days
from the date of his appointment. D
(2) The public announcement referred to in sub-regulation
(1) shall:
(a) be in Form A of the Schedule;
(b) be published—
E
(i) in one English and one regional language newspaper with
wide circulation at the location of the registered office and
principal office, if any, of the corporate debtor and any other
location where in the opinion of the interim resolution
professional, the corporate debtor conducts material business
operations; F
(ii) on the website, if any, of the corporate debtor; and
(iii) on the website, if any, designated by the Board for the
purpose,
(ba) state where claim forms can be downloaded or obtained G
from, as the case may be;
(bb) offer choice of three insolvency professionals identified
under Regulation 4-A to act as the authorised representative
of creditors in each class; and
H
826 SUPREME COURT REPORTS [2022] 13 S.C.R.
A (c) provide the last date for submission of proofs of claim,
which shall be fourteen days from the date of appointment of
the interim resolution professional.
(3) The applicant shall bear the expenses of the public
announcement which may be reimbursed by the committee to
B the extent it ratifies them.
7. Claims by operational creditors.—(1) A person claiming to
be an operational creditor, other than workman or employee
of the corporate debtor, shall submit claim with proof to the
interim resolution professional in person, by post or by
C electronic means in Form B of the Schedule:
Provided that such person may submit supplementary
documents or clarifications in support of the claim before the
constitution of the committee.
(2) The existence of debt due to the operational creditor under
D this regulation may be proved on the basis of—
(a) the records available with an information utility, if any;
or
(b) other relevant documents, including—
E (i) a contract for the supply of goods and services with
corporate debtor;
(ii) an invoice demanding payment for the goods and services
supplied to the corporate debtor;
(iii) an order of a court or tribunal that has adjudicated upon
F the non-payment of a debt, if any; or
(iv) financial accounts.
(v) copies of relevant extracts of Form GSTR-1 and Form
GSTR-3B filed under the provisions of the relevant laws
G relating to Goods and Services Tax and the copy of e-way
bill wherever applicable:
Provided that provisions of this sub-clause shall not apply to
those creditors who do not require registration and to those
goods and services which are not covered under any law
relating to Goods and Services Tax.
H
STATE TAX OFFICER (1) v. RAINBOW PAPERS LIMITED 827
[INDIRA BANERJEE, J.]
8. Claims by financial creditors.—(1) A person claiming to be A
a financial creditor, other than a financial creditor belonging
to a class of creditors, shall submit claim with proof to the
interim resolution professional in electronic form in Form C
of the Schedule:
Provided that such person may submit supplementary B
documents or clarifications in support of the claim before the
constitution of the committee.
(2) The existence of debt due to the financial creditor may be
proved on the basis of—
(a) the records available with an information utility, if any; C
or
(b) other relevant documents, including—
(i) a financial contract supported by financial statements as
evidence of the debt; D
(ii) a record evidencing that the amounts committed by the
financial creditor to the corporate debtor under a facility
has been drawn by the corporate debtor;
(iii) financial statements showing that the debt has not been
paid; or E
(iv) an order of a court or tribunal that has adjudicated upon
the non-payment of a debt, if any.
8-A. Claims by creditors in a class.—(1) A person claiming to
be a creditor in a class shall submit claim with proof to the
interim resolution professional in electronic form in Form CA F
of the Schedule.
(2) The existence of debt due to a creditor in a class may be
proved on the basis of—
(a) the records available with an information utility, if any; G
or
(b) other relevant documents, including any—
(i) agreement for sale;
(ii) letter of allotment;
H
828 SUPREME COURT REPORTS [2022] 13 S.C.R.
A (iii) receipt of payment made; or
(iv) such other document, evidencing existence of debt.
(3) A creditor in a class may indicate its choice of an
insolvency professional, from amongst the three choices
provided by the interim resolution professional in the public
B announcement, to act as its authorised representative.
9. Claims by workmen and employees.—(1) A person claiming
to be a workman or an employee of the corporate debtor
shall submit claim with proof to the interim resolution
professional in person, by post or by electronic means in Form
C D of the Schedule:
Provided that such person may submit supplementary
documents or clarifications in support of the claim, on his
own or if required by the interim resolution professional, before
the constitution of the committee.
D
(2) Where there are dues to numerous workmen or employees
of the corporate debtor, an authorised representative may
submit one claim with proof for all such dues on their behalf
in Form E of the Schedule.
(3) The existence of dues to workmen or employees may be
E
proved by them, individually or collectively on the basis of—
(a) records available with an information utility, if any; or
(b) other relevant documents, including—
(i) a proof of employment such as contract of employment for
F the period for which such workman or employee is claiming
dues;
(ii) evidence of notice demanding payment of unpaid dues
and any documentary or other proof that payment has not
been made; or
G
(iii) an order of a court or tribunal that has adjudicated upon
the non-payment of a dues, if any.
9-A. Claims by other creditors.—(1) A person claiming to be
a creditor, other than those covered under Regulations 7, 8,
8-A or 9, shall submit its claim with proof to the interim
H
STATE TAX OFFICER (1) v. RAINBOW PAPERS LIMITED 829
[INDIRA BANERJEE, J.]
resolution professional or resolution professional in person, A
by post or by electronic means in Form F of the Schedule.
(2) The existence of the claim of the creditor referred to in
sub-section (1) may be proved on the basis of—
(a) the records available in an information utility, if any, or
B
(b) other relevant documents sufficient to establish the claim,
including any or all of the following—
(i) documentary evidence demanding satisfaction of the claim;
(ii) bank statements of the creditor showing non-satisfaction
of claim; C
(iii) an order of court or tribunal that has adjudicated upon
non-satisfaction of claim, if any.
10. Substantiation of claims.—The interim resolution
professional or the resolution professional, as the case may
D
be, may call for such other evidence or clarification as he
deems fit from a creditor for substantiating the whole or part
of its claim.
11. Cost of proof.—A creditor shall bear the cost of proving
the debt due to such creditor.
E
12. Submission of proof of claims.—(1) Subject to sub-
regulation (2), a creditor shall submit claim with proof on or
before the last date mentioned in the public announcement.
(2) A creditor, who fails to submit claim with proof within the
time stipulated in the public announcement, may submit the F
claim with proof to the interim resolution professional or the
resolution professional, as the case may be, on or before the
ninetieth day of the insolvency commencement date.
(3) Where the creditor in sub-regulation (2) is a financial
creditor under Regulation 8, it shall be included in the G
committee from the date of admission of such claim:
Provided that such inclusion shall not affect the validity of
any decision taken by the committee prior to such inclusion.
12-A. Updation of claim.—A creditor shall update its claim
as and when the claim is satisfied, partly or fully, from any H
830 SUPREME COURT REPORTS [2022] 13 S.C.R.
A source in any manner, after the insolvency commencement
date.
13. Verification of claims.—(1) The interim resolution
professional or the resolution professional, as the case may
be, shall verify every claim, as on the insolvency
B commencement date, within seven days from the last date of
the receipt of the claims, and thereupon maintain a list of
creditors containing names of creditors along with the amount
claimed by them, the amount of their claims admitted and the
security interest, if any, in respect of such claims, and update
it.
C
(2) The list of creditors shall be—
(a) available for inspection by the persons who submitted
proofs of claim;
(b) available for inspection by members, partners, directors
D and guarantors of the corporate debtor or their authorised
representatives;
(c) displayed on the website, if any, of the corporate debtor;
(ca) filed on the electronic platform of the Board for
dissemination on its website:
E
Provided that this clause shall apply to every corporate
insolvency resolution process ongoing and commencing on
or after the date of commencement of the Insolvency and
Bankruptcy Board of India (Insolvency Resolution Process
for Corporate Persons) (Fifth Amendment) Regulations, 2020;
F
(d) filed with the Adjudicating Authority; and
(e) presented at the first meeting of the committee.
14. Determination of amount of claim.—(1) Where the amount
claimed by a creditor is not precise due to any contingency
G or other reason, the interim resolution professional or the
resolution professional, as the case may be, shall make the
best estimate of the amount of the claim based on the
information available with him.
(2) The interim resolution professional or the resolution
H professional, as the case may be, shall revise the amounts of
STATE TAX OFFICER (1) v. RAINBOW PAPERS LIMITED 831
[INDIRA BANERJEE, J.]
claims admitted, including the estimates of claims made under A
sub-regulation (1), as soon as may be practicable, when he
comes across additional information warranting such
revision.”
22. Prior to amendment by Notification No.IBBI/2018-19/GN/
REG013 dated 3rd July 2018, with effect from 4th July, 2018, Sub- B
Regulation (1) of Regulation 12 read with Sub-Regulation (2) provided
that a creditor shall submit proof of claim on or before the last date
mentioned in the public announcement. Sub-Regulation (2) was amended
with effect from 4th July, 2018 and now reads “a creditor shall submit
claim with proof on or before the last date mentioned in the public
announcement”. C
23. The Regulations have to be read as a whole and not in a
truncated manner and interpreted in the light of the statutory provisions
of the IBC, as interpreted by this Court. This Court has time and again
held that the time lines stipulated in the IBC even for completion of
proceedings are directory and not mandatory. D
24. In this case, claims were invited well before the 5th October,
2017 which was the last date for submission of claims. Under the
unamended provisions of Regulation 12(1), the Appellant was not required
to file any claim. Read with Regulation 10, the appellant would only be
required to substantiate the claim by production of such materials as E
might be called for. The time stipulations are not mandatory as is obvious
from Sub-Regulation (2) of Regulation 14 which enables the Interim
Resolution Professional or the Resolution Professional, as the case may
be, to revise the amounts of claims admitted, including the estimates of
claims made under Sub-Regulation (1) of the said Regulation as soon as
might be practicable, when he came across additional information F
warranting such revision.
25. In this case, at the cost of repetition, it may be noted that there
was no obligation on the part of the State to lodge a claim in respect of
dues which are statutory dues for which recovery proceedings have
also been initiated. The appellants were never called upon to produce G
materials in connection with the claim raised by the Appellants towards
statutory dues. The Adjudicating Authority as well as the Appellate
Authority/NCLAT misconstrued the Regulations.
26. On behalf of the Appellant, it has been argued that there were
proceedings initiated by the State against the respondent-Corporate
H
832 SUPREME COURT REPORTS [2022] 13 S.C.R.
A Debtor to realise its statutory dues. The Books of Accounts of the
Corporate Debtor would have reflected the liability of the Corporate
Debtor to the State in respect of its statutory dues. In abdication of its
mandatory duty, the RP failed to examine the Books of Accounts of the
Corporate Debtor, verify and include the same in the information
memorandum and make provision for the same in the Resolution Plan.
B
The Resolution Plan does not conform to the statutory requirements of
the IBC and is, therefore, not binding on the State.
27. Mr. Tushar Mehta, learned Solicitor General of India appearing
on behalf of the Appellant with Mr. K.M. Nataraj, Additional Solicitor
General of India and Ms. Aastha Mehta, learned Advocate, referred to
C Sections 3(30) and 3(31) of the IBC, set out herein below :-
“Section 3(30) and 3(31) of the Code read :
“3(30)”secured creditor” means a creditor in favour of whom
security interest is created;
D 3(31)”security interest” means right, title or interest or a claim
to property, created in favour of, or provided for a secured
creditor by a transaction which secures payment or
performance of an obligation and includes mortgage, charge,
hypothecation, assignment and encumbrance or any other
agreement or arrangement securing payment or performance
E
of any obligation of any person:
Provided that security interest shall not include a performance
guarantee;”
28. The learned Solicitor General of India submitted that a reading
F of Sections 3(30) and 3(31) of the IBC makes it clear that the finding of
the NCLAT that the State is not a secured creditor is erroneous and
contrary to the clear definition of secured creditor under the IBC.
29. As argued by the learned Solicitor General, the term “Secured
Creditor” as defined under the IBC is comprehensive and wide enough
G to cover all types of security interests namely, the right, title, interest or
a claim to property, created in favour of, or provided for a secured creditor
by a transaction, which secures payment or performance of an obligation
and includes mortgage, charge, hypothecation, assignment and
encumbrance or any other agreement or arrangement securing payment
or performance of any obligation of any person.
H
STATE TAX OFFICER (1) v. RAINBOW PAPERS LIMITED 833
[INDIRA BANERJEE, J.]
30. The learned Solicitor Generalrightly argued that in view of the A
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 the Code.
31. Mr. Nataraj, Additional Solicitor General submitted that the B
Appellate Authority, NCLAT has held that the Tax Department of the
State does not fall within the meaning of “Secured Creditor”. The NCLAT
has, according to Mr. Nataraj, come to such a conclusion on the erroneous
premise that Section 48 of the GVAT Act, 2003, cannot prevail over
Section 53 of the IBC.
C
32. The learned ASG argued that, it was not the case of the
Appellant that Section 48 of the GVAT Act prevails over Section 53 of
the IBC. It was the case of the Appellant that the State falls within the
purview of “Secured Creditor”.
33. The learned ASG submitted that the mere fact that a creditor D
might be an operational creditor would not result in loss of status of that
operational creditor as a secured creditor. The finding of the Appellate
Authority is contrary to law and cannot be sustained.
34. The learned ASGpointed out that the Appellant had made its
claim to the RP on 28.02.2018, long before the resolution plan was E
approved by the CoC under Section 30(4) of the IBC. Yet, the RP did
not include the claim in the Resolution Plan.
35. The learned ASG emphatically argued that the RP was obliged
to receive, verify and collate claims and forward the same to the
Adjudicating Authority for approval. The learned ASG cited Swiss F
Ribbons(P) Ltd. v. Union of India,1 where this Court held that the
Resolution Professional does not have adjudicatory powers to accept or
reject the claim. His duty is only to receive, verify and collate the claims.
36. Referring to Section 30(2) of the IBC, the learned ASG argued
that the afore-mentioned provision mandates the RP to ensure that the
G
Resolution Plan conforms to the parameters/requirements laid down in
the said provision. It was the duty of the Resolution Professional to
examine, ensure and verify that the resolution plan conformed to the
parameters/requirements laid down under Section 30(2) of the IBC.
1
(2019) 4 SCC 17
H
834 SUPREME COURT REPORTS [2022] 13 S.C.R.
A Further, Section 29 of the IBC casts a statutory duty and/or obligation on
the Resolution Professional to prepare the information memo after
following the procedure laid down in the Court.
37. The learned ASG pointed out that under Section 29 of the
IBC, the Resolution Professional is required to prepare the Information
B Memorandum. The Information Memorandum is mandatorily required
to contain the details as mentioned in Regulation 36(2) of the Regulations,
2016.
38. The learned ASG referred to Regulation 36(2) of the
Regulations, 2016 which is set out herein below :-
C “36. Information memorandum
(2) The information memorandum shall contain the following
details of the corporate debtor -
(a) .....
D (b) the latest annual financial statements;
(c) audited financial statements of the corporate debtor for
the last two financial years and provisional financial
statements for the current financial year made up to a date
not earlier than fourteen days from the date of the application;
E (d) ....
.......
(h)details of all material litigation and an ongoing
investigation or proceeding initiated by Government and
statutory authorities;
F
(i) ....
......
(I)other information, which the resolution professional deems
relevant to the committee.”
G 39. The Adjudicating Authority (NCLT) and the Appellate
Authority (NCLAT) have held that the claim of the State is belated.
Regulation 12 of the 2016 Regulations deals with the time period for
submission of a claim along with proof, as stipulated in the public
announcement under Section 15 of the IBC. The time period is, however,
H not mandatory but only directory.
STATE TAX OFFICER (1) v. RAINBOW PAPERS LIMITED 835
[INDIRA BANERJEE, J.]
40. In the case of Vishal Saxena &Anr. v. Swami Deen Gupta A
Resolution Professional 2, the NCLT took the view that the time
stipulation in Regulation 12 for submission of a claim is directory and not
mandatory. Similar view was also taken by the NCLT in its judgment
and order dated 10th June 2021 in Assistant Commissioner of Customs
v. Mathur SabhapathyVishwanathan3. The rejection of the claim of
B
the State is unsustainable in law.
41. 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. C
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.4, cited by the learned Solicitor General, this
Court observed :- D
“64. 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 E
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, F
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 G
of the I&B Code is revival of the corporate debtor and to
make it a running concern.
2
(2020) SCC Online NCLT 2734
3
IBA/578/2019 NCLT, Chennai
4
(2021) 9 SCC 657
H
836 SUPREME COURT REPORTS [2022] 13 S.C.R.
A 66. The resolution plan submitted by the successful resolution
applicant is required to contain various provisions viz.
provision for payment of insolvency resolution process costs,
provision for payment of debts of operational creditors, which
shall not be less than the amount to be paid to such creditors
in the event of liquidation of the corporate debtor under
B
Section 53; or the amount that would have been paid to such
creditors, if the amount to be distributed under the resolution
plan had been distributed in accordance with the order of
priority in sub-section (1) of Section 53, whichever is higher.
The resolution plan is also required to provide for the payment
C of debts of financial creditors, who do not vote in favour of
the resolution plan, which also shall not be less than the
amount to be paid to such creditors in accordance with sub-
section (1) of Section 53 in the event of a liquidation of the
corporate debtor. Explanation 1 to clause (b) of sub-section
(2) of Section 30 of the I&B Code clarifies for the removal of
D
doubts that a distribution in accordance with the provisions
of the said clause shall be fair and equitable to such creditors.
The resolution plan is also required to provide for the
management of the affairs of the corporate debtor after
approval of the resolution plan and also the implementation
E and supervision of the resolution plan. Clause (e) of sub-
section (2) of Section 30 of the I&B Code also casts a duty
on RP to examine that the resolution plan does not contravene
any of the provisions of the law for the time being in force.”
43. The learned Solicitor General rightly argued that when a
F grievance was made before the Adjudicating Authority with regard to a
Resolution Plan, the Adjudicating Authority was required to examine if
the Resolution Plan met the requirements of Section 30(2) of the IBC.
The word “satisfied” used in Section 31(1) contemplates a duty on the
Adjudicating Authority to examine the Resolution Plan – The Resolution
Plan cannot be approved by way of an empty formality.
G
44. Section 61(3) of the IBC which stipulated the grounds for
challenge to the approval of a Resolution Plan, is set out hereinbelow for
convenience :-
“61. Appeals and Appellate Authority.—(1)…
H (2) …
STATE TAX OFFICER (1) v. RAINBOW PAPERS LIMITED 837
[INDIRA BANERJEE, J.]
(3) An appeal against an order approving a resolution plan A
under Section 31 may be filed on the following grounds,
namely—
(i) the approved resolution plan is in contravention of the
provisions of any law for the time being in force;
(ii) there has been material irregularity in exercise of the B
powers by the resolution professional during the corporate
insolvency resolution period;
(iii) the debts owed to operational creditors of the corporate
debtor have not been provided for in the resolution plan in
the manner specified by the Board; C
(iv) the insolvency resolution process costs have not been
provided for repayment in priority to all other debts; or
(v) the resolution plan does not comply with any other criteria
specified by the Board.”
D
45. As rightly argued by the learned Solicitor General, there can
be no question of acceptance of a Resolution Plan that is not in conformity
with the statutory provisions of Section 31(2) of the IBC.Section 30(2)(b)
of the IBC, casts an obligation on the Resolution Professional to examine
each resolution plan received by him and to confirm that such resolution
plan provides for the payment of dues of operational creditors, as specified E
by the Board, which shall not be less than the amount to be paid to such
creditors, in the event of liquidation of the Corporate Debtor under Section
53, or the amount that would have been paid to such operational creditors,
if the amount to be distributed under the resolution plan had been
distributed in accordance with the order of priority in Sub-section 2 of
Section 53, whichever was higher, and provided for the payment of debts F
of financial creditors, who did not vote in favour of the resolution plan, in
such manner as might be specified by the Board.
46. Under Section 31 of the IBC, a resolution plan as approved by
the Committee of Creditors under Sub-Section (4) of Section 30 might
be approved by the Adjudicating Authority only if the Adjudicating G
Authority is satisfied that the resolution plan as approved by the
Committee of Creditors meets the requirements as referred to in Sub-
Section (2) of Section 30 of the IBC. The condition precedent for approval
of a resolution plan is that the resolution plan should meet the requirements
of Sub-Section (2) of Section 30 of the IBC. H
838 SUPREME COURT REPORTS [2022] 13 S.C.R.
A 47. In Ebix Singapore Private Limited v. Committee of
Creditors of Educomp Solutions Limited and Another5, this Court
affirmed that Resolution Plans would have to conform to the statutory
provisions of the IBC, and held:-
“147. In terms of Regulation 39(4), the RP shall endeavour
B to submit the resolution plan approved by the CoC before the
adjudicating authority for its approval under Section 31 IBC,
at least fifteen days before the maximum period for completion
of CIRP. Section 31(1) provides that the adjudicating authority
shall approve the resolution plan if it is satisfied that it
complies with the requirements set out under Section 30(2)
C IBC. Essentially, the adjudicating authority functions as a
check on the role of the RP to ensure compliance with Section
30(2) IBC and satisfies itself that the plan approved by the
CoC can be effectively implemented as provided under the
proviso to Section 31(1) IBC. Once the resolution plan is
D approved by the adjudicating authority, it becomes binding
on the corporate debtor and its employees, members,
creditors, guarantors and other stakeholders involved in the
resolution plan...”.
48. A resolution plan which does not meet the requirements of
E Sub-Section (2) of Section 30 of the IBC, would be invalid and not binding
on the Central Government, any State Government, any statutory or
other authority, any financial creditor, or other creditor to whom a debt in
respect of dues arising under any law for the time being in force is
owed. Such a resolution plan would not bind the State when there are
outstanding statutory dues of a Corporate Debtor.
F
49. Section 31(1) of the IBC which empowers the Adjudicating
Authority to approve a Resolution Plan uses the expression “it shall by
order approve the resolution plan which shall be binding...” subject
to the condition that the Resolution Plan meets the requirements of sub-
section (2) of Section 30. If a Resolution Plan meets the requirements,
G the Adjudicating Authority is mandatorily required to approve the
Resolution Plan. On the other hand, Sub-section (2) of Section 31, which
enables the Adjudicating Authority to reject a Resolution Plan which
does not conform to the requirements referred to in sub-section (1) of
Section 31, uses the expression “may”.
5
H (2022) 2 SCC 401
STATE TAX OFFICER (1) v. RAINBOW PAPERS LIMITED 839
[INDIRA BANERJEE, J.]
50. Ordinarily, the use of the word “shall” connotes a mandate/ A
binding direction, while use of the expression “may” connotes discretion.
If statute says, a person may do a thing, he may also not do that thing.Even
if Section 31(2) is construed to confer discretionary power on the
Adjudicating Authority to reject a Resolution Plan, it has to be kept in
mind that discretionary power cannot be exercised arbitrarily, whimsically
B
or without proper application of mind to the facts and circumstances
which require discretion to be exercised one way or the other.
51. If the established facts and circumstances require discretion
to be exercised in a particular way, discretion has to be exercised in that
way. 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, C
the Resolution would have to be rejected.It is also a well settled principle
of interpretation that the expression “may”, if circumstances so demand
can be construed as “Shall”.
52. If the Resolution Plan ignores the statutory demands payable
to any State Government or a legal authority, altogether, the Adjudicating D
Authority is bound to reject the Resolution Plan.
53. In other words, if a company is unable to pay its debts, which
should include its statutory dues to the Government and/or other authorities
and there is no plan which contemplates dissipation of those debts in a
phased manner, uniform proportional reduction, the company would E
necessarily have to be liquidated and its assets sold and distributed in the
manner stipulated in Section 53 of the IBC.
54. 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 F
Government or Governmental Authority or for that matter, any other
dues.
55. In our considered view, the NCLAT clearly erred in its
observation that Section 53 of the IBC over-rides Section 48 of the
GVAT Act. Section 53 of the IBC begins with a non-obstante clause G
which reads :-
“Not withstanding anything to the contrary contained in any
law enacted by the Parliament or any State Legislature for
the time being in force, the proceeds from the sale of the
H
840 SUPREME COURT REPORTS [2022] 13 S.C.R.
A liquidation assets shall be distributed in the following order
of priority...........”
56. Section 48 of the GVAT Act is not contrary to or inconsistent
with Section 53 or any other provisions of the IBC. Under Section
53(1)(b)(ii), the debts owed to a secured creditor, which would include
B 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.
57. As observed above, the State is a secured creditor under the
GVAT Act. Section 3(30) of the IBC defines secured creditor to mean a
C creditor in favour of whom security interest is credited. Such security
interest could be created by operation of law. The definition of secured
creditor in the IBC does not exclude any Government or Governmental
Authority.
58. We are constrained to hold that the Appellate Authority
D (NCLAT) and the Adjudicating Authority erred in law in rejecting the
application/appeal of the appellant. As observed above, delay in filing a
claim cannot be the sole ground for rejecting the claim.
59. The appeals are allowed. The impugned orders are set aside.
The Resolution plan approved by the CoC is also set aside. The Resolution
E Professional may consider a fresh Resolution Plan in the light of the
observations made above. However, this judgment and order will not,
prevent the Resolution Applicant from submitting a plan in the light of
the observations made above, making provisions for the dues of the
statutory creditors like the appellant.
F 60. There shall be no order as to costs.
Nidhi Jain Appeals allowed.
(Assisted by : Shashwat Jain, LCRA)
G
H
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