TaxTMI 
TaxTMI 
2023 (9) TMI 1293
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....vour of the Petitioner; B) YOUR LORDSHIPS may be pleased to issue a writ of mandamus or a writ in the nature of mandamus or any other appropriate writ, order or directions setting aside order dated 05.01.2022 passed by Respondent No. 3 and further set aside the consequential Entry No. 6295 mutated in the revenue record; BB) YOUR LORDSHIPS may be pleased to issue a writ of mandamus or a writ in the nature of mandamus or any other appropriate writ, order or directions quashing and setting aside endorsement of Respondent No. 4 - Circle Officer rejecting the Entry 4454 as the same was without hearing the Petitioner and is completely illegal; 2. Facts in brief are as under: 2.1 The petitioner is a public limited company incorporated under the Companies Act, 1956. It is engaged in the business of rice processing and exporting and is the world's largest rice miller. 2.2 The petitioner is an auction purchaser of land being non agricultural land situated at Survey No. 113, Village:Varsamedi, Taluka: Anjar, District: Kutch, admeasuring 44,212 square meters. The land in question was purchased by an auction by way of a registered sale deed dated 17.12.2021 from the l....
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....ate Goods and Services Department. Thereafter, an auction sale notice was issued on 14.09.2021 for sale of assets including the land in question. E-auction took place on 01.10.2021 which was extended thereafter. The petitioner participated in the auction proceedings and submitted a bid form on 26.10.2021. He was declared as a successful bidder of the land in question and the buildings. He was informed accordingly and the payments were made by the petitioner to the liquidator. 2.6 The Gram Panchayat - Varsamedi addressed a letter on 12.11.2021 to M/s. Gran Electronics Private Limited to pay outstanding property tax. On 15.11.2021, the petitioner requested the Gram Panchayat to issue No Due Certificate. A registered sale deed was executed on 17.12.2021. The liquidator by letter dated 17.12.2021 informed the Panchayat stating that any dues other than secured, unsecured or of the workman and employees will fall under operational creditors. Vide notice dated 10.01.2022, the SGST department in an absolutely illegal manner intimated attachment of the land in question. A pencil entry bearing no. 4454 was mutated in favour of the petitioner. On a request made by the petitioner on 16.02.2....
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.... and comprehensive code and all rights even of secured creditors in the secured assets stands diluted and compromised. 3.4 Mr. Parikh would submit that once the property was sold by the liquidator in the public auction and on "as is where is basis", the secured creditor cannot be allowed to assert an entry for the asset once sold. He would submit that the claim of the SGST department was rejected by the Committee of creditors on 22.02.2020. Pursuant to an auction notice and proceedings thereafter, the petitioner had purchased the property by a registered sale deed dated 17.10.2021. As a purchaser, the petitioner was never aware of any dues. Reading the sale deed, it is very clear that it was categorically decided that the petitioner shall not be responsible to pay any dues to the Government. 3.5 Mr. Parikh would submit that even taking into consideration the position under the general law as per Section 100 of the Transfer of Properties Act, a charge created by operation of law or otherwise is not a mortgage. It is therefore not an interest in the property but only it is a legal or a contractual right to the person in whom the charge is vested. He would submit that as per the....
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....onics Private Limited had obtained financial facilities from IFCI Limited. Unable to sustain its business, it had closed its operations from February 2019 onwards. An application under Section 7 of the IBC was filed by one Universal Digital Connect Limited and on 17.01.2020 the National Company Law Tribunal (NCLT) admitted the petition wherein moratorium under Section 14 of the Code became operative and an IRP was appointed. 5.2 On 25.01.2020 a public advertisement was issued inviting claims. The advertisement/public announcement was issued under Regulation 6 of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Reforms) Regulations 2016. In accordance with the Regulations a creditor had to provide/submit proofs of claim by 06.02.2020. 5.3 On 22.02.2020 the IRP was confirmed as a Resolution Professional and list of claims with respect to operational creditors were put forth. 5.4 The Sales Tax Department on 30.06.2020 submitted its claim of Rs. 77,08,69,644/- which was rejected by the Resolution Professional. After a unanimous vote of the Committee of Creditors to liquidate the company the NCLT Mumbai, on 12.02.2021 passed an order liq....
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....der which this Company has been registered. f. All the powers of the Board of Directors, key managerial persons, the partners of the Corporate Debtor hereafter ceased to exist. All these powers henceforth vest with the Liquidator." 5.5 A public announcement was made on 19.02.2021 under Regulation 12 of the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations 2016. The stakeholders were called to submit their claims with proof on or before 20.03.2021 to the liquidator. The liquidator addressed a letter on 23.02.2021 to the Assistant Commissioner State Tax to submit claims in accordance with Rule 16 of the Liquidation Process Regulations. However, the State Tax Department did not lodge any claim either physically or through e-mail. An E-auction for 01.10.2021 was notified on "AS IS WHERE IS" "AS IS WHAT IS" and "WHATEVER THERE IS BASIS". By a subsequent corrigendum the date was changed to 29.10.2021. The petitioner on 26.10.2021 offered to bid for the land and building and made a deposit of EMD. On 29.10.2021, the petitioner was declared as a successful bidder and the balance amount was credited in the liquidator's account. A sale deed was executed o....
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....ion made by Universal Digital Connect Limited (Financial Creditor') under Section 7 of the Insolvency and Bankruptcy Code, 2016 ("the Code/ IBC, 2016') and pronounced the commencement of Corporate Insolvency Resolution. Process (CIRP) of Gran Electronics Private Limited ('Corporate Debtor') and my appointment as an Interim Resolution Professional ('IRP'). A copy of the said order is enclosed herewith for your ready reference as Annexure A. The same was intimated to your department vide letter dated 12 March, 2020 (enclosed herewith as Annexure B) and in response to which I had received your claim however, due to insufficient supporting documents, the claim submitted by you was not admitted. ... ... Subsequently, a public announcement in accordance with Regulation 12 of the IBBI (Liquidation Process), Regulations, 2016 (Liquidation Regulations, 2016) was published on 19 February, 2021 in the following newspapers, the copy of the Public announcement is enclosed herewith as Annexure E: Sr. No. Edition Publication Language 1. Mumbai Fress Press Journal English Navakal Marathi 2. Gandhidham,....
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....nal as the Liquidator, the Liquidator once again called for lodging of claims by way of a public announcement under the liquidation process regulations. To this, as the letter dated 22.04.2022 indicates no claim was lodged in accordance with Regulation 31A of the Liquidation Regulations. 5.10 The relevant regulations, namely Regulations 6, 7, 10, 12 and 13 of Insolvency Resolution Process for Corporate persons read as under: "6. Public announcement.-(1) An insolvency professional shall make a public announcement immediately on his appointment as an interim resolution professional. Explanation: 'Immediately' means not later than three days from the date of his appointment. (2) The public announcement referred to in sub-regulation (1) shall: (a) be in Form A of the Schedule; (b) be published- (i) in one English and one regional language newspaper with wide circulation at the location of the registered office and principal office, if any, of the corporate debtor and any other location where in the opinion of the interim resolution professional, the corporate debtor conducts material business operations; (ii) on the webs....
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....ating the whole or part of its claim. ... 12. Submission of proof of claims.-(1) Subject to sub- regulation (2), a creditor shall submit claim with proof on or before the last date mentioned in the public announcement. (2) A creditor, who fails to submit claim with proof within the time stipulated in the public announcement, may submit the claim with proof to the interim resolution professional or the resolution professional, as the case may be, on or before the ninetieth day of the insolvency commencement date. (3) Where the creditor in sub-regulation (2) is a financial creditor under Regulation 8, it shall be included in the committee from the date of admission of such claim: Provided that such inclusion shall not affect the validity of any decision taken by the committee prior to such inclusion. 12-A. Updation of claim.-A creditor shall update its claim as and when the claim is satisfied, partly or fully, from any source in any manner, after the insolvency commencement date. 13. Verification of claims.-(1) The interim resolution professional or the resolution professional, as the case may be, shall verify every claim, as on t....
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....ent for the goods and services supplied to the corporate debtor; (iii) an order of a court or tribunal that has adjudicated upon the nonpayment of a debt, if any; and (iv) financial accounts ... ... 31. List of stakeholders. (1) The liquidator shall prepare a list of stakeholders, category-wise, on the basis of proofs of claims submitted and accepted under these Regulations, with- (a) the amounts of claim admitted, if applicable, (b) the extent to which the debts or dues are secured or unsecured, if applicable, (c) the details of the stakeholders, and (d) the proofs admitted or rejected in part, and the proofs wholly rejected. (2) The liquidator shall file the list of stakeholders with the Adjudicating Authority within forty-five days from the last date for receipt of claims, and the filing of the list shall be announced to the public in the manner specified in Regulation 12(3). (3) The liquidator may apply to the Adjudicating Authority to modify an entry in the list of stakeholders filed with the Adjudicating Authority, when he comes across additional information warranting such modi....
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....s admitted during the liquidation process is at least 25% of liquidation value Number of creditors in the category, subject to a maximum of 2 Shareholders or partners, if any 1 (3) The liquidator may facilitate the stakeholders of each class to nominate their representatives for inclusion in the consultation committee. (4) If the stakeholders of any class fail to nominate their representatives, the required number of stakeholders with the highest claim amount in that class shall be included in the consultation committee. (5) Subject to the provisions of the Code and these regulations, representatives in the consultation committee shall have access to all relevant records and information as may be required to provide advice to the liquidator under sub-regulation (1). (6) The liquidator shall convene a meeting of the consultation committee when he considers it necessary and shall convene a meeting of the consultation committee when a request is received from at least fifty-one percent of representatives in the consultation committee. (7) The liquidator shall chair the meetings of consultation committee and record deliber....
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....f the corporate-debtor by means of private sale in the manner specified in Schedule I when- (a) the asset is perishable; (b) the asset is likely to deteriorate in value significantly if not sold immediately; (c) the asset is sold at a price higher than the reserve price of a failed auction; or (d) the prior permission of the Adjudicating Authority has been obtained for such sale: Provided that the liquidator shall not sell the assets, without prior permission of the Adjudicating Authority, by way of private sale to- (a) a related party of the corporate debtor; (b) his related party; or (c) any professional appointed by him. (3) The liquidator shall not proceed with the sale of an asset if he has reason to believe that there is any collusion between the buyers, or the corporate debtor's related parties and buyers, or the creditors and the buyer, and shall submit a report to the Adjudicating Authority in this regard, seeking appropriate orders against the colluding parties." 5.12 Sections 7, 29, 31, 33, 52 and 53 of the IBC read as under: "7. Appointment of professionals. (1) A liquidator may....
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....djudicating Authority while disposing off an appeal preferred under section 42. (5) The list of stakeholders, as modified from time to time, shall be- (a) available for inspection by the persons who submitted proofs of claim; ^21(b) available for inspection by members, partners, directors and guarantors of the corporate debtor; (c) displayed on the website, if any, of the corporate debtor. ... 33. Mode of sale. (1) The liquidator shall ordinarily sell the assets of the corporate debtor through an auction in the manner specified in Schedule I. (2) The liquidator may sell the assets of the corporate debtor by means of private sale in the manner specified in Schedule I when- (a) the asset is perishable; (b) the asset is likely to deteriorate in value significantly if not sold immediately; (c) the asset is sold at a price higher than the reserve price of a failed auction; or (d) the prior permission of the Adjudicating Authority has been obtained for such sale: Provided that the liquidator shall not sell the assets, without prior permission of the Adjudicating Authority, by way o....
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....) may pass such order as may be necessary to permit a secured creditor to realise security interest in accordance with law for the time being in force. (7) Where the enforcement of the security interest under sub-section (4) yields an amount by way of proceeds which is in excess of the debts due to the secured creditor, the secured creditor shall- (a) account to the liquidator for such surplus; and (b) tender to the liquidator any surplus funds received from the enforcement of such secured assets. (8) The amount of insolvency resolution process costs, due from secured creditors who realise their security interests in the manner provided in this section, shall be deducted from the proceeds of any realisation by such secured creditors, and they shall transfer such amounts to the liquidator to be included in the liquidation estate. (9) Where the proceeds of the realisation of the secured assets are not adequate to repay debts owed to the secured creditor, the unpaid debts of such secured creditor shall be paid by the liquidator in the manner specified in clause (e) of sub-section (1) of section 53." ... 53-Distribution of ....
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....he same class of recipients, if the proceeds are insufficient to meet the debts in full; and (ii) the term "workmen's dues" shall have the same meaning as assigned to it in section 326 of the Companies Act, 2013." 5.13 Extensive reliance was paid to the decision of the Supreme Court in the case of Ghanshayam Mishra and Sons Private Limited (supra). The Supreme Court in the aforesaid case after an extensive review of the IBC and various decisions rendered thereunder, the Court observed that once the resolution plan is approved, it becomes binding on the stakeholders including creditors. Relevant paragraphs of the judgement read as under: "65. Bare reading of Section 31 of the I&B Code would also make it abundantly clear, that once the resolution plan is approved by the Adjudicating Authority, after it is 61 satisfied, that the resolution plan as approved by CoC meets the requirements as referred to in subsection (2) of Section 30, it shall be binding on the Corporate Debtor and its employees, members, creditors, guarantors and other stakeholders. Such a provision is necessitated since one of the dominant purposes of the I&B Code is, revival of the Corporate Debt....
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....details regarding the number of workers and employees and liabilities of the Corporate Debtor towards them are required to be contained in the information memorandum. 68. All these details are required to be contained in the information memorandum so that the resolution applicant is aware, as to what are the liabilities, that he may have to face and provide for a plan, which apart from satisfying a part of such liabilities would also ensure, that the Corporate Debtor is revived and made a running establishment. The legislative intent of making the resolution plan binding on all the stakeholders after it gets 64 the seal of approval from the Adjudicating Authority upon its satisfaction, that the resolution plan approved by CoC meets the requirement as referred to in subsection (2) of Section 30 is, that after the approval of the resolution plan, no surprise claims should be flung on the successful resolution applicant. The dominant purpose is, that he should start with fresh slate on the basis of the resolution plan approved. 69. This aspect has been aptly explained by this Court in the case of Committee of Creditors of Essar Steel India Limited through Authorised ....
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....or to the approval of resolution plan by NCLT, will have to be considered. 73. Vide Section 7 of Act No. 26 of 2019 (vide S.O. 2953(E), dated 16.8.2019 w.e.f. 16.8.2019), the following words have been inserted in Section 31 of the I&B Code. "including the Central Government, any State Government or any local authority to whom a debt in respect of the payment of dues arising under any law for the time being in force, such as authorities to whom statutory dues are owed" 74. As such, with respect to the proceedings, which arise after 16.8.2019, there will be no difficulty. After the 67 amendment, any debt in respect of the payment of dues arising under any law for the time being in force including the ones owed to the Central Government, any State Government or any local authority, which does not form a part of the approved resolution plan, shall stand extinguished. ... 79. In the Rajya Sabha debates, on 29.7.2019, when the Bill for amending I&B Code came up for discussion, there were certain issues raised by certain Members. While replying to the issues raised by certain Members, the Hon'ble Finance Minister stated thus: "IBC has actually ....
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....her states, that once the resolution plan is accepted, the earlier promoters will be dealt with as individuals for their criminality but not the new bidder who is trying to restore the company. ... 84. It is clear, that the mischief, which was noticed prior to amendment of Section 31 of I&B Code was, that though the legislative intent was to extinguish all such debts owed to the Central Government, any State Government or any local authority, including the tax authorities once an approval was Granted to the resolution plan by NCLT; on account of there being some ambiguity, the State/Central Government authorities continued with the proceedings in respect of the debts owed to them. In order to remedy the said mischief, the legislature thought it appropriate to clarify the position, that once such a resolution plan was approved by the Adjudicating Authority, all such claims/dues owed to the State/Central Government or any local authority including tax authorities, which were not part of the resolution plan shall stand extinguished. ... 93. As discussed hereinabove, one of the principal objects of I&B Code is, providing for revival of the Corporate ....
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....nder subsection (1) of Section 31, the claims as provided in the resolution plan shall stand frozen and will be binding on the Corporate Debtor and its employees, members, creditors, including the Central Government, any State Government or any local authority, guarantors and other stakeholders. On the date of approval of resolution plan by the Adjudicating Authority, all such claims, which are not a part of resolution plan, shall stand extinguished and no person will be entitled to initiate or continue any proceedings in respect to a claim, which is not part of the resolution plan; 102.2 The 2019 amendment to Section 31 of the I&B Code is clarificatory and declaratory in nature and therefore will be effective from the date on which I&B Code has come into effect; 102.3 Consequently all the dues including the statutory dues owed to the Central Government, any State Government or any local authority, if not part of the resolution plan, shall stand extinguished and no proceedings in respect of such dues for the period prior to the date on which the Adjudicating Authority Grants its approval under Section 31 could be continued." 5.14 What therefore emerges is that ....
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....y:-- (a) the insolvency resolution process costs and the liquidation costs paid in full; (b) the following debts which shall rank equally between and among the following:-- (i) workmen's dues for the period of twenty-four months preceding the liquidation commencement date; and (ii) debts owed to a secured creditor in the event such secured creditor has relinquished security in the manner set out in section 52; (c) wages and any unpaid dues owed to employees other than workmen for the period of twelve months preceding the liquidation commencement date; (d) financial debts owed to unsecured creditors; (e) the following dues shall rank equally between and among the following:- (i) any amount due to the Central Government and the State Government including the amount to be received on account of the Consolidated Fund of India and the Consolidated Fund of a State, if any, in respect of the whole or any part of the period of two years preceding the liquidation commencement date; (ii) debts owed to a secured creditor for any amount unpaid following the enforcement of security interest; (f) any re....
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....n 52" receive a fairly high priority (immediately after insolvency resolution process costs), whereas in other cases, i.e., when the secured creditor does not relinquish security, the priority of claim is lower [Section 53 (1) (e) (ii)] in respect of "any amount unpaid following 15 the enforcement of security interest". Another feature is that amounts due to the government (i.e., payable into the Consolidated Fund of India or Consolidated Fund of a State) are ranked in the same manner as those of secured creditors who do not relinquish their security interest [Section 53 (1) (e) (ii)]. 29. The Bankruptcy Law Reforms Committee Report, 2015, which led to the framing and later enactment of IBC, pertinently stated that: "The Committee has recommended to keep the right of the Central and State Government in the distribution waterfall in liquidation at a priority below the unsecured financial creditors in addition to all kinds of secured creditors for promoting the availability of credit and developing a market for unsecured financing (including the development of bond markets). In the long run, this would increase the availability of finance, reduce the cost of capital....
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....of security even where it has been relinquished, in order to promote overall value maximisation. However, even if secured creditors realise their security interest, they would only recover to the extent of their security interest, and would claim any excess dues remaining unpaid under Section 53(1)(e) of the liquidation waterfall. Thus, the Committee was of the view that this provision could not have been intended to provide secured creditors who relinquish their security interest, priority of repayment over their entire debt regardless of the extent of their security interest, as it would tantamount to respecting a right that has never existed. Further, if the "debts owed to a secured creditor" is not restricted to the extent of the security, there would be broad scope for misuse of the priority Granted under Section 52(1) (b), as even creditors who are not secured to the full extent of their debt would rely on the mere fact of holding any form of security, to recover the entire amount of their unpaid dues in priority to all other stakeholders. 7.4. On the basis of the above discussion, the Committee agreed that the priority for recovery to secured creditors under Section....
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....s as follows: "Secured creditor in liquidation proceedings. (1) A secured creditor in the liquidation proceedings may- (a) relinquish its security interest to the liquidation estate and receive proceeds from the sale of assets by the liquidator in the manner specified in section 53; or (b) realise its security interest in the manner specified in this section. (2) Where the secured creditor realises security interest under clause (b) of sub-section (1), he shall inform the liquidator of such security interest and identify the asset subject to such security interest to be realised. (3) Before any security interest is realised by the secured creditor under this section, the liquidator shall verify such security interest and permit the secured creditor to realise only such security interest, the existence of which may be proved either- (a) by the records of such security interest maintained by an information utility; or (b) by such other means as may be specified by the Board. (4) A secured creditor may enforce, realise, settle, compromise or deal with the secured assets in accordance with such law as applicable to....
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....anner specified in Section 53 of the Code. The second option is to realise the security interest, but in the manner specified in Section 52 of the Code. Sub-section (2) to Section 52 of the Code states that where the secured creditor realises the security interest, he shall inform the liquidator of such security interest and identify the asset subject to such security interest to be realised. The liquidator is to verify the security interest and shall permit the secured creditor to realise such security interest, which is proved either by records of such security interest maintained by an information utility, or by such other means as may be specified by the Board. Sub-section (4) to Section 52 of the Code states that the secured creditor may enforce, realise, settle, compromise or deal with the secured asset in accordance with such law as applicable to the security interest being realised and to the secured creditor. The secured creditor is to accordingly apply the proceeds to recover the debts due to him. We need not refer to Sub-section (5) to Section 52 of the Code as it relates to the action which the secured creditor may take if he faces resistance from the corporate debtor o....
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.... distributed in the order of priority, which is stipulated, and within such period and such manner as may be specified. The consequence of Sub-section (1) to Section 53 of the Code is that it will override the rights of parties, including the secured creditor, when the said provision applies. Section 53 of the Code is the complete and comprehensive code which ensures collection of assets and then provides the manner in which the creditors are to be paid. Even the rights of the secured creditor falling Under Section 53 of the Code to enforce, realise, settle, compromise or deal with the secured assets as applicable to the security interest are diluted and compromised. 70. Clause (a) to Sub-section (1) to Section 53 deals with insolvency resolution process costs and the liquidation costs which are to be paid in full. No grievance or issue can be raised in respect of the said clause. Clause (b) to Sub-section (1) to Section 53 states that the debts due in the form of workmen's dues for a period of twenty four months preceding the liquidation commencement date and the debts owed to the secured creditor in the event such secured creditor has relinquished security in the man....
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....quity shareholders or partners fall under Clause (h) of Sub-section (1) to Section 53 of the Code. Sub-section (2) to Section 53 of the Code states that any contractual arrangements between recipients Under Sub-section (1) with equal ranking, if disrupting the order of priority under the said Sub-section will be disregarded by the liquidator 71. The waterfall mechanism is based on a structured mathematical formula, and the hierarchy is created in terms of payment of debts in order of priority with several qualifications, striking down any one of the provisions or rearranging the hierarchy in the waterfall mechanism may lead to several trips and disrupt the working of the equilibrium as a whole and stasis, resulting in instability. Every change in the waterfall mechanism is bound to lead to cascading effects on the balance of rights and interests of the secured creditors, operational creditors and even the Central and State Governments. Depending upon the facts, in some cases, the waterfall mechanism in the Code may be more beneficial than the hierarchy provided Under Section 326 of the Companies Act, 2013 and vice-versa. Therefore, we hesitate and do not accept the argumen....
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....s (supra) was in the context of a resolution process and not during liquidation. Section 53, as held earlier, enacts the waterfall mechanism providing for the hierarchy or priority of claims of various classes of creditors. The careful design of Section 53 locates amounts payable to secured creditors and workmen at the second place, after the costs and expenses of the liquidator payable during the liquidation proceedings. However, the dues payable to the government are placed much below those of secured creditors and even unsecured and operational creditors. This design was either not brought to the notice of the court in Rainbow Papers (supra) or was missed altogether. In any event, the judgment has not taken note of the provisions of the IBC which treat the dues payable to secured creditors at a higher footing than dues payable to Central or State Government. 50. The Gujarat Value Added Tax Act, 2003 no doubt creates a charge in respect of amounts due and payable or arrears. It would be possible to hold [in the absence of a specific enumeration of government dues as in the present case, in Section 53(1)(e)] that the State is to be treated as a 'secured creditor'. However....