Supreme Court clarifies priority of state dues in insolvency cases, remands for further consideration.

The Supreme Court set aside the Adjudicating Authority's order directing the issuance of a No Objection Certificate (NOC) to the Liquidator. The Court held that statutory dues owed to the State should be considered, emphasizing that the Insolvency and Bankruptcy Code (IBC) does not override the first charge provisions of state VAT laws. The case was remanded for further consideration in light of this clarification, following the principles established in the Rainbow Papers Limited case.

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Issues Involved:
1. Whether the Adjudicating Authority erred in directing the issuance of No Objection Certificate (NOC) to the Liquidator.
2. Whether the claim of the State under the HP VAT Act, 2005 holds a first charge over the property of the corporate debtor.
3. Whether the provisions of the IBC override the provisions of the HP VAT Act, 2005.
4. Whether the rejection of the State's claim by the Liquidator on the grounds of delay was justified.

Detailed Analysis:

1. Issuance of No Objection Certificate (NOC):
The Adjudicating Authority directed the Respondent Nos. 1 and 2 to issue an NOC to the Liquidator and Director of Industries to register the properties. This direction was based on the Liquidator's application under Section 60(5) of the Insolvency and Bankruptcy Code, 2016 (IBC). The Liquidator had sold certain immovable properties of the Corporate Debtor through private sale mode and required the NOC to complete the registration process.

2. First Charge of State under HP VAT Act, 2005:
The Appellants argued that the State has a first charge over the property of the dealer under Section 26 of the HP VAT Act, 2005, which should prevail over the claims of other creditors. They cited the Supreme Court's judgment in Central Bank of India Vs. State of Kerala, which upheld the supremacy of the first charge of the State over central acts like the DRT Act and SARFAESI Act. The Appellants contended that the same principle should apply to the IBC, given the similar language in Section 26 of the HP VAT Act and Section 48 of the GVAT Act.

3. Provisions of IBC vs. HP VAT Act, 2005:
The Respondent argued that Section 238 of the IBC, which overrides other laws, should apply. The Adjudicating Authority observed that the Appellants had filed a claim before the Liquidator, which was accepted as an operational debt. Regulation 21A of the IBBI (Liquidation Process) Regulations, 2016, requires secured creditors to inform the Liquidator of their decision to relinquish or realize their security interest. The Appellants had not provided such information, leading to the inclusion of the property in the liquidation estate.

4. Rejection of State's Claim on Grounds of Delay:
The Liquidator rejected the Appellants' claim due to the delay in submission, as the last date for submission had expired. The Appellants argued that their claim was within the knowledge of the Liquidator, and the delay should not be a ground for rejection. The Supreme Court's recent judgment in State Tax Officer (1) Vs. Rainbow Papers Limited emphasized that statutory dues owed to the Government should not be ignored in the resolution plan and that delay in filing a claim should not be the sole ground for rejection.

Findings:
The Adjudicating Authority relied on the judgment in Sanjay Gupta, Liquidator vs. Office of the Deputy Commissioner of State Taxes and Excise (H.P.), which held that assets declared as part of the liquidation estate should be governed by the IBC. However, the Supreme Court's judgment in State Tax Officer (1) Vs. Rainbow Papers Limited clarified that statutory dues owed to the Government should be considered and that the IBC does not override the first charge provisions of state VAT laws.

Conclusion:
The impugned order dated 12.10.2020 passed by the Adjudicating Authority was set aside. The Supreme Court's authority pronouncement in Rainbow Papers Limited necessitated reconsideration of the statutory dues owed to the State. The appeal was allowed, and the case was remanded for further consideration in light of the Supreme Court's observations.

Instructions for Registry:
The Registry was directed to upload the Judgment on the website of the Appellate Tribunal and send a copy of the Judgment to the Adjudicating Authority (National Company Law Tribunal, Principal Bench, New Delhi) forthwith.

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