The Supreme Court on Monday admitted an appeal by the Department of State Tax seeking to be treated as a secured creditor in a case related to the corporate insolvency resolution process of debt-ridden Siddheshwar Industries. The department said that tax laws override the Insolvency and Bankruptcy Code 2016, a stand that was rejected by the National Company Law Appellate Tribunal in July.
A Bench led by Chief Justice DY Chandrachud sought response from Siddheshwar Industries and its resolution professional and tagged the matter with the similar appeals pending adjudication by a larger bench.
The debt-laden firm is allegedly liable to pay sales tax to the tune of over Rs. 58.21 crore. CIRP was initiated against Siddheshwar in May 2018 on an application by Gandhar Oil Refinery.
The lenders in June last year had approved a sole resolution plan for a total amount of Rs 34 crore from one Vikas Bapurao Takawane with a 98.77% voting share. While the Mumbai bench of the National Company Law Tribunal had approved the resolution plan, it had treated the state tax department as operational creditor and was allowed only 1% of the amount. Even the appellate tribunal had rejected the state tax department's plea against the approval granted to Takawane.
Challenging the NCLAT’s July order that rejected its plea, the department told the SC that the NCLAT should have taken notice of the fact that the Committee of Creditors cannot secure their own dues at the cost of statutory dues owed to any government or governmental authority. The debts of the nature of "crown debts" are to be paid in full while passing the resolution plan, senior counsel Shyam Mehta argued.
The appeal filed through counsel Aaditya Pande further stated that the NCLAT had relied on its February 2023 judgment in a case related to Maharashtra Value Added Tax Act, 2002 where it had held that state tax department cannot be held to be a secured creditor.
The department said that the NCLAT had incorrectly relied on its previous judgement even when the SC later had favoured the revenue authorities.
Pande stated that the department is a secured creditor by operation of law. Section 3(30) of the IBC says that the definition of a secured creditor in the IBC does not exclude any government or governmental authority. "The said view has also been reiterated by the SC in the case of State Tax Officer vs Rainbow Papers,” he added.
Stating that there exists no contradiction or inconsistency between the insolvency law or the provisions of the Central Goods and Services Tax (CGST) and the Maharashtra Goods and Services Tax Act (MGSTA) 2017 in the present case, the appeal said that all the three laws can be “harmoniously construed” and since there exists no contradiction between the two statutes, there exists no requirement or need for the insolvency law to prevail over the CGST and Maharashtra GST Act.
A Bench led by Chief Justice DY Chandrachud sought response from Siddheshwar Industries and its resolution professional and tagged the matter with the similar appeals pending adjudication by a larger bench.
The debt-laden firm is allegedly liable to pay sales tax to the tune of over Rs. 58.21 crore. CIRP was initiated against Siddheshwar in May 2018 on an application by Gandhar Oil Refinery.
The lenders in June last year had approved a sole resolution plan for a total amount of Rs 34 crore from one Vikas Bapurao Takawane with a 98.77% voting share. While the Mumbai bench of the National Company Law Tribunal had approved the resolution plan, it had treated the state tax department as operational creditor and was allowed only 1% of the amount. Even the appellate tribunal had rejected the state tax department's plea against the approval granted to Takawane.
Challenging the NCLAT’s July order that rejected its plea, the department told the SC that the NCLAT should have taken notice of the fact that the Committee of Creditors cannot secure their own dues at the cost of statutory dues owed to any government or governmental authority. The debts of the nature of "crown debts" are to be paid in full while passing the resolution plan, senior counsel Shyam Mehta argued.
The appeal filed through counsel Aaditya Pande further stated that the NCLAT had relied on its February 2023 judgment in a case related to Maharashtra Value Added Tax Act, 2002 where it had held that state tax department cannot be held to be a secured creditor.
The department said that the NCLAT had incorrectly relied on its previous judgement even when the SC later had favoured the revenue authorities.
Pande stated that the department is a secured creditor by operation of law. Section 3(30) of the IBC says that the definition of a secured creditor in the IBC does not exclude any government or governmental authority. "The said view has also been reiterated by the SC in the case of State Tax Officer vs Rainbow Papers,” he added.
Stating that there exists no contradiction or inconsistency between the insolvency law or the provisions of the Central Goods and Services Tax (CGST) and the Maharashtra Goods and Services Tax Act (MGSTA) 2017 in the present case, the appeal said that all the three laws can be “harmoniously construed” and since there exists no contradiction between the two statutes, there exists no requirement or need for the insolvency law to prevail over the CGST and Maharashtra GST Act.
