2020 (10) TMI 736 - Tri - Insolvency and Bankruptcy

Tribunal dismisses claim for Secured Creditor status under Insolvency & Bankruptcy Code

The Tribunal dismissed the Applicant's claim to be recognized as a Secured Creditor under the Insolvency & Bankruptcy Code based on provisions of the ... Liquidation process - Priority of settlement of dues - Payment of dues of Applicant as Secured Creditors as provided under the provisions of Part II Chapter II of the Insolvency & Bankruptcy Code, 2016 - HELD THAT:- It is clear that the dues of the Government, Central Government and/or State Government or any legal authority fall under the category of 'Operational Debt'. That apart, the Applicant is claiming that in view of the provision of section 48 of Gujarat Value Added Tax, 2003, he may be treated as Secured Creditor. This contention of the Applicant is/are also not maintainable in view of the definition stated hereinabove as also in view of section 238 of the IBC. While deciding the issue of 'Operational Creditor' and 'Financial Creditor', the Hon'ble Supreme Court observed in SWISS RIBBONS PVT. LTD. AND ANR. VERSUS UNION OF INDIA AND ORS. [2019 (1) TMI 1508 - SUPREME COURT] wherein it is inter alia observed that 'an 'Operational Debt' would include a claim in respect of the provision of goods or service, including employment, or a debt in respect of payment of goods or services, including employment, or a debt in respect of payment of dues arising under any law and payable to the Government or any local authority. Statutory dues such as income tax, value added tax and other statutory dues arising out of law will arise only if the company/corporate debtor is operational and, therefore, such dues have a direct nexus with the company' - Thus, any dues and services of the Government Departments are considered as 'Operational Creditor'. Under such circumstances, the very purpose for which the IA has been filed is not going to succeed as they fall under the category of Operational Creditor as per the provisions of IBC. Application dismissed. Issues:1. Application for directions to ensure payment of dues as Secured Creditors under the Insolvency & Bankruptcy Code, 2016.2. Claim of being a Secured Creditor under the Gujarat Value Added Tax.3. Interpretation of 'Operational Creditor,' 'Financial Creditor,' and 'Operational Debt.'4. Applicability of Section 238 of the IBC overriding other laws.5. Precedents related to the overriding effect of the IBC.Analysis:1. The Applicant, a State Tax Officer-1, filed applications seeking directions for securing dues as Secured Creditors under the Insolvency & Bankruptcy Code, 2016, specifically under Part II Chapter II. The Applicant claimed to be a Secured Creditor based on the provisions of the Gujarat Value Added Tax, aiming to be recognized as such in a case under Corporate Insolvency Resolution Process (CIRP).2. The Tribunal examined the definitions of 'Operational Creditor,' 'Financial Creditor,' and 'Operational Debt.' It was noted that dues to the Government, Central Government, State Government, or any legal authority fall under the category of 'Operational Debt.' The Applicant's assertion of being a Secured Creditor under the Gujarat Value Added Tax was deemed unsustainable under the IBC's definitions and Section 238, which takes precedence over other laws.3. Referring to the Hon'ble Supreme Court's rulings, the Tribunal highlighted the significance of Section 238 of the IBC, emphasizing its overriding effect on conflicting laws. The judgments underscored that the IBC's objective of completing Corporate Insolvency Resolution Processes promptly would be thwarted if other laws were allowed to impede the process.4. Citing the Swiss Ribbons Pvt. Ltd. case, the Tribunal reiterated that statutory dues payable to Government Departments are categorized as 'Operational Creditor' under the IBC. Consequently, the Tribunal concluded that the Applicant's claim did not align with the IBC's provisions, as Government dues are inherently considered operational debts.5. Despite dismissing the Applicant's claim, the Tribunal granted the State Tax Officer-1 the liberty to present their claim as an 'Operational Creditor' before the Resolution Professional. Ultimately, the Tribunal found no merit in the Applicant's application, leading to its disposal with the outlined observations.