Operational creditor recovery under insolvency waterfall upheld; tax department's first-charge argument was held distinguishable.

The State Tax Department's claim was treated as that of an operational creditor, and the approved resolution plan was upheld because the Insolvency and Bankruptcy Code requires only the minimum distribution available to such a creditor in liquidation under the waterfall mechanism. The earlier Rainbow Papers ruling was held distinguishable, since the first-charge provision relied on there operated in a different context, while the provision invoked here was expressly subject to central insolvency law and the insolvency waterfall. On that basis, the plan did not violate the statutory distribution framework, and the challenge failed.

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Issues: Whether approval of the resolution plan allocating a minimal amount to the State Tax Department as an operational creditor was liable to be interfered with on the ground that the department had filed a large tax claim and relied on the ruling in Rainbow Papers.

Analysis: The claim of the State Tax Department was treated as that of an operational creditor. The resolution plan was tested against the statutory scheme under the Insolvency and Bankruptcy Code, under which an operational creditor is entitled to receive at least the amount it would obtain in liquidation under the waterfall mechanism. The earlier decision relied upon for the appellant was held distinguishable because the statutory provision there dealt with a first charge in a different context, whereas the provision invoked in the present matter was expressly subject to central law and the insolvency waterfall. On that basis, the plan was not found to violate the statutory requirements governing distribution to operational creditors.

Conclusion: The challenge to the approved resolution plan failed and the appeal was dismissed.

Final Conclusion: The approval of the resolution plan was upheld, and the State Tax Department obtained no interference with the treatment accorded to its claim in the insolvency resolution process.

Ratio Decidendi: An operational creditor's entitlement in a resolution plan is measured by the minimum distribution permissible under the insolvency liquidation waterfall, and a tax claim based on a first-charge provision will not prevail where the statutory scheme makes it subject to the central insolvency law.

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