2024 (9) TMI 565 - AT - IBC

NCLAT rejects secured creditor treatment under Section 30, distinguishes Rainbow Papers case on MVAT Act provisions

Commercial Tax Department Versus Mrs. Teena Saraswat Pandey & Anr

The NCLAT dismissed the appeal where the appellant sought treatment as a secured creditor under Section 30 of the Code. The appellant relied on Rainbow ... Approval of Resolution plan - grievance is that the Appellant was treated as an unsecured creditor, the claim of the appellant was termed as unsecured debt and was not considered as secured debt under Section 30 of the Code - HELD THAT:- The entire case of the Appellant is based upon the decision in the case of Rainbow Papers [2022 (9) TMI 317 - SUPREME COURT] in which, while interpreting Section 48 of the GVAT Act, the Hon’ble Supreme Court has held that the State Tax Office, in the said case, was secured creditor. In the case of Commissioner of Income Tax Vs. KTC Tyres (India) Ltd. [2005 (9) TMI 665 - SUPREME COURT], the argument raised was that the capital gain tax which was payable by the company must be treated as liquidation expenses and therefore, must be paid first even before the dues of the workmen and secured creditors are discharged. This contention was totally rejected by the Hon’ble Supreme Court in the aforesaid case KTC Tyres holding that “reading sections 529A and 530 together, there is no escape from the conclusion that the liability towards workmen’s dues and debts due to secured creditors as provided under clause (b) of Section 529A(1) has to be paid in priority to all other debts including tax dues to the revenue.” In the case of Zicom Saas Pvt. Ltd. [2023 (2) TMI 1170 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL, NEW DELHI], the Department of State Tax of Maharashtra filed the claim before the RP of an amount of Rs. 43,72,97,479/- out of which Resolution Professional accepted the claim of Rs. 36,68,12,729/-and in the plan they were allotted only 1% of the admitted claim. In this case also reliance has been placed upon in the case of Rainbow Papers alleging that the claim of the State Tax Maharashtra has to be treated as secured charge in terms of Section 37 of the MVAT Act, however, while interpreting Section 48 of the GVAT Act vis a vis Section 37 of the MVAT Act, this Court has found that Section 37 was made subject to any provision regarding creation of first charge in any central act, the provisions of Section 48 of the GVAT Act and Section 37 of the MPVAT Act were not pari materia and therefore, it was held that “9. When we compare the provisions of Section 48 of the provision of Gujarat Values Added Tax which was relied in “Rainbow Papers Limited” and the Provisions of Section 37 which is sought to be relied on in the present Appeal, distinction between the provisions is clear. Although it has also been held by the Hon’ble Supreme Court in the case of Paschimanchal Vidyut Vitran Nigam Limited [2023 (7) TMI 831 - SUPREME COURT] that the decision in the case of Rainbow Papers is a decision of the Court in the facts of the said case but without going into this aspect of the matter, it is opined that argument of the Appellant would not cut any ice that Section 48 of the GVAT Act and Section 33 of the MPVAT Act are pari materia, therefore, the ratio laid down by the Hon’ble Supreme Court in the case of Rainbow Papers has to be applied rather the provisions of Section 37 of the MVAT Act and Section 33 of the MPVAT Act appears to be pari materia about which a decision has been taken by this court in the case of Zicom Saas [2023 (2) TMI 1170 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL, NEW DELHI] that both the provisions are not pari materia with Section 48 of the GVAT Act, therefore, no benefit can be given to the Appellant on the basis of the decision of the Rainbow Papers. There are no merit in the present appeal and hence, the same is hereby dismissed. Issues Involved:1. Classification of the appellant's claim as unsecured debt.2. Applicability of the Supreme Court's decision in Rainbow Papers Limited.3. Comparison of Section 48 of the GVAT Act with Section 33 of the MPVAT Act.4. Priority of payments under the Insolvency and Bankruptcy Code (IBC) and the Companies Act.Issue-wise Detailed Analysis:1. Classification of the Appellant's Claim as Unsecured Debt:The appellant, the Commercial Tax Department, Government of Madhya Pradesh, filed an appeal against the order dated 25.08.2022, arguing that its claim was wrongly classified as unsecured debt. The appellant contended that their statutory demand should be considered a secured debt under Section 30 of the Insolvency and Bankruptcy Code (IBC). The appellant relied on the Supreme Court's decision in State Tax Officer (1) Vs. Rainbow Papers Limited, which held that statutory dues should be treated as secured debts.2. Applicability of the Supreme Court's Decision in Rainbow Papers Limited:The appellant argued that the statutory demand of Rs. 12,61,57,345/- should be considered as a secured debt based on the Supreme Court's decision in Rainbow Papers Limited. The appellant referred to specific paragraphs from the Rainbow Papers judgment to support their claim. However, the respondent argued that the Rainbow Papers judgment was not applicable to this case because Section 48 of the GVAT Act and Section 33 of the MPVAT Act are not pari materia.3. Comparison of Section 48 of the GVAT Act with Section 33 of the MPVAT Act:The respondent highlighted that Section 33 of the MPVAT Act is subject to the provisions of Section 530 of the Companies Act, 1956, unlike Section 48 of the GVAT Act. This distinction was crucial in determining whether the appellant's claim could be considered a secured debt. The court found that Section 33 of the MPVAT Act, being subject to Section 530 of the Companies Act, 1956, could not be treated as pari materia with Section 48 of the GVAT Act.4. Priority of Payments under the IBC and the Companies Act:The appellant's claim was further scrutinized under the provisions of the IBC and the Companies Act. The court referred to Section 530 of the Companies Act, which outlines the order of preferential payments in a winding-up scenario. It was noted that Section 529A of the Companies Act gives priority to workmen's dues and secured creditors over other debts, including tax dues. The court also referenced the Supreme Court's decision in Commissioner of Income Tax Vs. KTC Tyres (India) Ltd., which held that tax dues do not take precedence over workmen's dues and secured creditors.Conclusion:The court concluded that the appellant's claim could not be considered a secured debt under Section 33 of the MPVAT Act as it is subject to the provisions of Section 530 of the Companies Act, 1956. The court found no merit in the appellant's argument that Section 48 of the GVAT Act and Section 33 of the MPVAT Act are pari materia. Consequently, the appeal was dismissed, and the appellant's claim remained classified as an unsecured debt.