Statutory first charge treated as security interest, allowing release of reserved resolution proceeds to the State Tax Department.

The State Tax Department's claim under the statutory first charge in Section 48 of the Gujarat Value Added Tax Act, 2003 was treated as a security interest under the Insolvency and Bankruptcy Code after Rainbow Papers. Because the disputed amount had been reserved by the resolution professional and the State's status as creditor remained unresolved when the resolution plan was approved and implemented, the Tribunal held that the approved plan did not bar release of that amount to the State. It further held that directing payment from the reserved resolution proceeds did not modify the commercial terms of the plan, but applied the governing law to the pending classification issue.

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Issues: Whether the State Tax Department's claim, backed by a statutory charge under Section 48 of the Gujarat Value Added Tax Act, 2003, could be directed to be paid from the resolution proceeds after approval and implementation of the resolution plan, and whether such direction amounted to an impermissible modification of the approved plan.

Analysis: The amount in dispute had been kept aside by the resolution professional pending adjudication of the State's status, and the issue was still alive when the Supreme Court declared in Rainbow Papers that a statutory first charge under Section 48 of the Gujarat Value Added Tax Act, 2003 creates a security interest within the meaning of the Insolvency and Bankruptcy Code, 2016. The Tribunal held that the State Tax Department was a secured creditor and that the approved resolution plan did not foreclose adjustment of the reserved amount where the question had remained pending before the adjudicating authority. It further held that directing release of the reserved sum did not alter the commercial terms of the plan, but only gave effect to the governing law and to the pending issue concerning classification of the State's dues.

Conclusion: The State Tax Department was entitled to be treated as a secured creditor for the reserved amount, and the direction for payment from the resolution proceeds was upheld.

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