Secured creditor status of tax authority preserved despite no CIRP claim; pre-existing attachment and liquidation rights upheld.

The Madras HC held that a pre-existing tax attachment over a corporate debtor's property, created before commencement of CIRP and based on crystallised TNVAT dues, could not be ignored in liquidation. It treated the tax authority as a secured creditor because of its statutory charge and attachment, and held that in liquidation the creditor may either relinquish its security to participate in distribution or enforce its security under Section 52 of the Insolvency and Bankruptcy Code. The Court further held that failure to file a claim in CIRP or liquidation did not, by itself, extinguish the secured creditor's rights, and the liquidator could not disregard that status while dealing with the asset and sale proceeds.

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Issues: Whether the pre-existing tax attachment over the corporate debtor's property could be interfered with after liquidation and sale, and whether the tax department's secured claim could be defeated for want of a claim filed within the CIRP or liquidation process.

Analysis: The attachment was created before commencement of CIRP and the tax dues had crystallised under the TNVAT regime. The Court held that a tax authority with a statutory charge and attachment over the assets stands as a secured creditor within the meaning of the Insolvency and Bankruptcy Code, 2016. In liquidation, such a secured creditor is entitled either to relinquish its security and share in the sale proceeds under the distribution scheme, or to realise its security interest in accordance with Section 52 of the Code. The Court treated the liquidation framework as preserving the independent rights of a secured creditor and held that non-filing of a claim in the CIRP could not, by itself, extinguish those rights. It further held that the liquidator could not ignore the secured creditor's position while dealing with the asset and sale proceeds.

Conclusion: The challenge to the attachment failed, and the writ petition was dismissed.

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