Statutory tax attachment does not create secured creditor status in liquidation when the claim is not admitted under insolvency law.

A statutory tax attachment created under the Tamil Nadu Value Added Tax Act did not, by itself, make the tax authority a secured creditor under the Insolvency and Bankruptcy Code where its claim was not duly admitted in liquidation. The Court treated the belated claim, the liquidation waterfall under Section 53, and the overriding effect of Section 238 as decisive, and confined Rainbow Papers to its facts. It also treated the clarificatory amendment to Section 3(31) as retrospective support for the view that a charge arising only by statute is not a security interest. The attachment could not bind the auction purchaser, and the sale was protected free from encumbrance.

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Issues: Whether a tax attachment under the Tamil Nadu Value Added Tax Act, 2006 could continue to bind property sold in liquidation under the Insolvency and Bankruptcy Code, 2016, and whether the VAT authority could be treated as a secured creditor notwithstanding its failure to lodge a timely claim.

Analysis: The attachment was created by operation of law under Section 42 of the Tamil Nadu Value Added Tax Act, 2006, but the Court held that such a statutory charge does not, by itself, elevate the authority to the status of a secured creditor under Section 3(30) and Section 3(31) of the Insolvency and Bankruptcy Code, 2016 when the claim was not admitted in liquidation. The Court distinguished decisions rendered in the resolution-process context and confined the earlier Rainbow Papers principle to its facts, relying instead on the post-amendment claim regime, the belated nature of the department's claim, and the liquidation waterfall under Section 53 read with the overriding effect of Section 238. The clarificatory amendment to Section 3(31) was treated as retrospective and supportive of the view that a charge created merely by statute is not a security interest.

Conclusion: The attachment could not survive against the auction purchaser, and the registering authority was required to make the appropriate encumbrance entry reflecting that the earlier attachment would not bar dealing with the property free from encumbrance.

Final Conclusion: The writ appeal succeeded, the attachment was set aside, and the auction sale was protected, subject to any future modification depending on the outcome of pending proceedings concerning the departmental claim.

Ratio Decidendi: A statutory tax charge created by operation of law does not become a secured interest under the Insolvency and Bankruptcy Code when the claim is not duly admitted in liquidation, and the liquidation waterfall together with the Code's overriding clause prevails over such unrecovered tax attachments.

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