2023 (9) TMI 1293 - HC - Insolvency and Bankruptcy

Court sets aside demand for outstanding GST dues, grants relief to public limited company under Insolvency and Bankruptcy Code

KRBL limited Versus State Of Gujarat

The court allowed the petition, setting aside the order demanding outstanding GST dues and the consequential charge on the property. It directed the ... CIRP - Transfer of property under auction - status of 'charge' created on the property - Right and liability of the purchaser of property - whether once the property was sold by the liquidator in the public auction and on “as is where is basis”, the secured creditor cannot be allowed to assert an entry for the asset once sold? - HELD THAT:- Claims were invited and the State during the process failed to substantiate it and at the stage of liquidation did not lodge its claim. In light of the judicial pronouncement above the debt therefore did not form a part of the resolution plan and therefore stood extinguished - Admittedly state tax dues and the State would be a claimant as an operational creditor. The claim lodged during insolvency process stood rejected and during the liquidation, no such claim was lodged. This fact is reiterated at the cost of repetition as this would lead thus to examine the provisions of Section 52 and 53 of the IBC. Reading Section 52 would indicate that a secured creditor in the liquidation proceedings may relinquish its security interest to the liquidation asset and receive proceeds on the sale of assets by the liquidation in the manner specified under section 53 or realise its security asset by enforcing its claim or settling it. In the facts of the present case having failed to assert its claim the State as an operational creditor/stakeholder/secured creditor would have to fall in line as per the “waterfall mechanism” under Section 53 of the IBC. Once having relinquished its interest under Section 52, the State cannot continue the insistence of maintaining the charge in the revenue records and its claim will have to stand in priority. The argument of the State that since the asset was sold on a condition of “AS IS WHERE IS BASIS”, the charge of the State was rightly recorded is misconceived as the deed already records that the purchaser shall not be liable for payment of any outstanding dues of the government. This too was, in the opinion of the Court a clause that would relieve the petitioner of the liability to pay tax dues - Even otherwise as per Section 100 of the Transfer of Property Act, a charge cannot be enforced against any property in the hands of a person to whom such property has been transferred for consideration and without notice of such charge. The State moved in to get a charge registered on 15.12.2022 much later. The order dated 05.01.2022 is set aside - Petition allowed. Issues Involved:1. Certification of Entry in Revenue Records2. Setting Aside of Order and Consequential Entry3. Quashing Endorsement of Circle Officer4. Applicability of Insolvency and Bankruptcy Code (IBC)5. Priority of State Government DuesSummary:1. Certification of Entry in Revenue Records:The petitioner, a public limited company, requested a writ of mandamus to direct Respondent No. 2 to certify Entry No. 4454 in the revenue record following the sale of land via a registered sale deed dated 17.12.2021. The land was purchased through an auction from the liquidator of M/s. Gran Electronics Private Limited under the Insolvency and Bankruptcy Code, 2016 (IBC).2. Setting Aside of Order and Consequential Entry:The petitioner sought to set aside the order dated 05.01.2022 passed by Respondent No. 3, which demanded Rs. 56,01,79,095/- towards outstanding GST dues and resulted in the mutation of Entry No. 6295 recording a charge on the property for the SGST Department. The petitioner argued that the claim of the SGST department was rejected during the insolvency resolution process, and the property was sold on an 'as is where is' basis without any dues to the government.3. Quashing Endorsement of Circle Officer:The petitioner also sought to quash the endorsement by Respondent No. 4 rejecting Entry No. 4454 without hearing the petitioner, deeming it illegal. The petitioner contended that under Section 100 of the Transfer of Property Act, a charge cannot be enforced against a purchaser without notice of such charge.4. Applicability of Insolvency and Bankruptcy Code (IBC):The petitioner relied on the Supreme Court's decision in Ghanshayam Mishra and Sons Private Limited v. Edelweiss Asset Reconstruction Company Limited, which held that a successful resolution applicant starts with a 'clean slate' and is not liable for undecided claims after the resolution plan is approved. The IBC provides a comprehensive code for dealing with the liquidation process, ensuring that all claims are settled according to the 'waterfall mechanism' under Section 53.5. Priority of State Government Dues:The respondent, represented by Mr. Pranav Trivedi, AGP, argued that the dues of the State Government, being crown dues, have precedence and cannot be wiped out even if the property was sold on an 'as is where is' basis. However, the court found that the State failed to lodge its claim during the liquidation process, and as per the IBC, the claims not part of the resolution plan stand extinguished.Judgment:The court allowed the petition, setting aside the order dated 05.01.2022 and the consequential Entry No. 6295. It directed the respondents to certify Entry No. 4454 in the revenue records pursuant to the sale deed dated 17.12.2021, emphasizing that the petitioner is entitled to a clean slate under the IBC. The court also noted that under Section 100 of the Transfer of Property Act, the charge cannot be enforced against the petitioner, who purchased the property for consideration and without notice of such charge.