TaxTMI 
TaxTMI 
2025 (11) TMI 961
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....hmedabad Bench ("Adjudicating Authority") in IA No. 195(AHC)/2024 in CP (IB) No. 72 of 2018, whereby the Adjudicating Authority directed Shri Kailash T. Shah, Resolution Professional/ Respondent No. 1 to release an amount of Rs. 1,31,19,769.08 in favour of the Gujarat State Tax Department/ Respondent No.3 treating it as a secured creditor under Section 48 of the Gujarat Value Added Tax Act, 2003 ("GVAT Act"). 2. The said direction was passed while deciding I.A. No. 522 of 2021, an earlier application filed by the Resolution Professional seeking removal of the State Tax Department's attachment over the properties of the Corporate Debtor, which had remained pending even after the approval of the Resolution Plan. Aggrieved by this order, the Appellant-Bank has approached this Appellate Tribunal contending that the Adjudicating Authority exceeded its jurisdiction by modifying the distribution under an already approved and implemented Resolution Plan. Brief facts of the case 3. Brief facts of the case are given below: (i) CP (IB) 72/2018 was filed by Ramniklal S. Gosalia & Co. under Section 9 of the Code before the Adjudicating Authority seeking initiation of Corporate....
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....Rs 7.85 cr. in favour of the appellant, the Respondent No.1 withheld Rs 1,31,19,769.08 therefrom. In response to the Appellant's request dated 26.08.2022, the RP, vide reply dated 05.09.2022, stated that I.A. No. 522/2021 filed by him against the State Tax Department, seeking removal of charges created by the Revenue Department, was pending before the Hon'ble Tribunal and that the related legal issue was sub judice before the Hon'ble Supreme Court; hence, releasing the said amount would tantamount to contempt of court. (xi) It was stated, on 13.12.2022, during hearing of IA No. 522 of 2021, the Adjudicating Authority recorded that the RP was considering the State Tax Department as a secured creditor. (xii) On 30.01.2024, the Appellant filed an application, IA No. 195 of 2024, seeking release of Rs. 1,31,19,769.08, along with an impleadment application in IA No. 522 of 2021. (xiii) The NCLT, by its order dated 22.02.2024, passed the impugned order whereby both the applications filed by the Appellant were dismissed. Thereafter, the Resolution Professional disbursed the amount to Respondent No. 3. (xiv) The Appellant, aggrieved by the impugned order....
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....l at any stage. The claim of Respondent No. 3, amounting to Rs. 38 crores, was filed as that of an Operational Creditor and was duly admitted by the Resolution Professional only to the extent of Rs. 3.37 crores on 17.12.2020. At that time, the said debt was classified as an unsecured operational debt, which Respondent No. 3 accepted without protest and did not challenge either before the Resolution Professional or the Adjudicating Authority. 8. It was further argued that based on such classification, the Resolution Professional invited Resolution Plans, and Respondent No. 2, the Successful Resolution Applicant, submitted a plan proposing payment of Rs. 7.85 crores (46.10% of admitted claims) to the Appellant, the sole Financial Creditor, while statutory dues, including those of Respondent No. 3, were capped at 0.013% of admitted dues. The plan was unanimously approved by the CoC on 13.09.2021 and subsequently approved by the Adjudicating Authority under Section 31 of the Insolvency and Bankruptcy Code, 2016, vide order dated 29.06.2022. 9. The counsel for the Appellant emphasized that under Section 31(1) of the IBC, an approved Resolution Plan is binding on all stakeholders, ....
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.... unchallenged, attained finality and is binding on Respondent No. 3. Any attempt to unsettle this plan based on a later ruling in a separate case would violate the principle of finality and the statutory mandate under Section 31. 13. The Appellant further contended that the doctrine of finality is a well- established principle in Indian jurisprudence. Once a judgment has become final and binding, it cannot be relitigated even if errors were made, and subsequent rulings in other cases cannot alter its effect. Reliance was placed on the Constitution Bench decision in 'Tilokchand Motichand v. H.B. Munshi (1969 1 SCC 110)', which held that a litigant cannot reopen concluded proceedings simply because a similar issue was decided differently in another case at a later stage. Additionally, the Appellant cited the Supreme Court decision in 'Neelima Srivastava vs. State of Uttar Pradesh and Ors 2021 SCC OnLine 610', which upheld that the State or any party cannot avoid implementing a judgment that has attained finality, merely because a subsequent higher forum ruling may appear inconsistent. Allowing such an approach would constitute an abuse of process and have far-reaching adverse cons....
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....already been executed, requiring the Resolution Applicant to submit a fresh plan to the Committee of Creditors, a step that is legally and commercially untenable in the present context, particularly since the Plan had already achieved finality. 17. The counsel submitted that the reliance of the Ld. Adjudicating Authority on the Supreme Court's judgment in Rainbow Papers is entirely misplaced. The Appellant emphasized that subsequent rulings, including 'Paschimanchal Vidyut Vitran Nigam Ltd. [(2023) 10 SCC 60]', clarified that Rainbow Papers failed to consider the statutory waterfall under Section 53 of the IBC and should be confined strictly to its own facts. Additionally, Rainbow Papers is per incuriam as it ignored the binding principles laid down in 'Ghanshyam Mishra & Sons Pvt. Ltd. [(2021) 9 SCC 657]' and 'Vaibhav Goel v. Deputy Commissioner of Income Tax 2025 SCC OnLine 592', which confirm that statutory dues not included in an approved Resolution Plan stand extinguished under Section 31 of the IBC. The Appellant further highlighted that the legislature itself, through the IBC Amendment Bill, 2025, has clarified that a security interest arises only from an agreement betwee....
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....legations and contentions raised by the Appellant are baseless and unsustainable in law. 20. It is submitted that prior to the approval of the Resolution Plan, the Hon'ble Supreme Court, in State Tax Officer v. Rainbow Papers (supra), had reserved its judgment on 23.03.2022 on the issue concerning the status of the State Tax Department as a "secured creditor." In view thereof, and to avoid any prejudice or contempt, the Respondent No. 1, in exercise of due diligence, kept aside an amount of Rs. 1,27,02,769.08 from the Resolution Plan proceeds pending adjudication of the issue. Upon the pronouncement of the judgment by the Hon'ble Supreme Court on 06.09.2022, holding that the State Tax Department is to be treated as a secured creditor under the IBC read with Section 48 of the Gujarat VAT Act, 2003, the Adjudicating Authority, while deciding I.A. No. 522/2021, rightly directed the disbursement of Rs. 1,31,19,769.08 in favour of Respondent No. 3. The said direction was strictly in conformity with the law declared by the Apex Court and was duly complied with by Respondent No. 1, who had no independent discretion in the matter. 21. Respondent No. 1 further submits that the content....
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....nal ("RP") had preferred I.A. No. 522 of 2021 before the Adjudicating Authority seeking removal of attachment placed by the Respondent. In reply thereto, the Respondent filed a detailed affidavit asserting that the charge over the properties of the Corporate Debtor had been created both by way of attachment and by operation of law. It was contended that the assessment orders passed by the Respondent under the GVAT Act and CST Act were never challenged by the Corporate Debtor and, therefore, had attained finality. Consequently, such orders have the force of law and confer upon the Respondent the status of a secured creditor under the relevant statutory provisions. 25. The Respondent placed reliance upon Sections 3(4), 3(30), and 3(31) of the Insolvency and Bankruptcy Code, 2016 ("the Code") read with Section 48 of the Gujarat Value Added Tax Act, 2003 ("GVAT Act") to substantiate that the State Tax Department falls within the definition of a "Secured Creditor." It was further stated that the State Tax Department had challenged an order of the Hon'ble NCLT, Mumbai Bench before the Hon'ble Gujarat High Court by way of Special Civil Application No. 23256 of 2019. The Hon'ble Gujarat....
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....he law declared by the Hon'ble Supreme Court in Rainbow Papers operates retrospectively, from the date the Code came into force. Therefore, the approval of the Resolution Plan prior to the said declaration is irrelevant, and the amounts payable to the Government must be re-determined in accordance with the said judgment. It was submitted that the Adjudicating Authority, Ahmedabad Bench, has correctly directed that payment be made to the State Tax Department treating it as a secured creditor. 30. The counsel for the respondent relied upon the judgment of the Hon'ble Delhi High Court in 'IFCI Ltd. v. Commercial Tax Officer [W.P. (C) 337/2011]', wherein it was held that dues under the CST Act, read with the relevant provisions of the State Sales Tax Act, create a statutory charge having priority over other debts, thereby rendering such dues as "secured." It was further emphasized that the Hon'ble Supreme Court in 'State Tax Officer v. Rainbow Papers Pvt. Ltd. (Civil Appeal No. 1661 of 2020)' has recognized the status of the State Tax Department as a secured creditor, without distinguishing between the GVAT Act and the CST Act. The said position has been reaffirmed in Review Petitio....
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....t passed in the subsequent matters viz. Judgment of Hon'ble Supreme Court in Rainbow Papers Ltd (supra). In the Rainbow papers matter Hon'ble SC held in a different case, where the misclassification was challenged by the State Tax Deptt on the grounds that they ought to be treated as a secured creditor; cannot alter the finality of order dated 29.06.2022 as the same had attained finality. 36. The appellant submits that Adjudicating Authority does not have the authority to alter or modify an approved resolution plan passed by 100% of CoC and duly approved by the Adjudicating Authority. He further submits that the ruling in Rainbow Papers is per incuriam as its fails to take into account the Judgment of Hon'ble SC in 'Ghanshyam Mishra & Sons Pvt. Ltd. v. Edelweiss Asset Reconstruction Company Ltd. [(2021) 9 SCC 657]'. In Ghanshyam Mishra matter Hon'ble SC held that on approval of the plan all dues including government dues which are not incorporated in the resolution plan stand extinguished under Section 31 of the Code. 37. The Appellant contends that Rainbow Papers cannot be applied here because in a later judgment, 'Paschimanchal Vidyut Vitran Nigam Ltd. v. Raman Ispat Pvt. L....
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....e by virtue of Section 48 of the Gujarat Value Added Tax Act read with Section 3(4), 3(30) and 3(31) of the IBC is a secured creditor as per Section 3(1)(b)(ii). The Hon'ble Gujarat High Court vide order dated 26.12.2019 was pleased to issue the notice to the respondents and stayed the operation, implementation and execution of the impugned order. 40. The Respondent No.3 also cites another Judgment of Division bench of Hon'ble Gujarat High Court in 'Shree Radhekrushna Ginning and Pressing Pvt. Ltd. vs. State of Gujarat [SCA No. 5413 of 2022]' on 29.03.2022, wherein an assessment order passed by the Competent Authority under GVAT Act, 2003 was challenged. The prayer in this case related to release of charge created on the property (land and factory building) of the writ applicant be released as the appeal against the assessment order was admitted by the first Appellate Authority. The Hon'ble HC held that Section 48 of GVAT Act 2003 creates charge on the property of the assessee by operation of law. The Hon'ble Gujarat High Court in paragraph 17 to 20 observed as follows: "17. The above-mentioned Section clearly indicates the following types of charges : 1) Charg....
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....after the approval of resolution plan is in accordance with the provisions of the Code and judicial precedents. 44. The appellant has stated that the Respondent No.3 never submitted a prayer before the RP for treating their admitted claim amount as secured operational debt. The Respondent No.3 also did not challenge the Resolution Plan which provided Rs. 7.85 crores to the financial creditor and therefore, they could not be treated as secured operational creditor. There was a specific amount of Rs. 50,211/- earmarked in the Resolution Plan for operational creditors and any payment to Respondent No. 3 had to be made out of that only. This contention was rebutted by the Respondent No. 3. It is their submission that RP was well aware of their clam as secured creditor as in the Information Memorandum, he had stated that there is a charge on the properties of the CD by the State Tax Department. It is in this context that RP had filed I.A. No. 522/2021 dated 24.07.2021 seeking an order from Adjudicating Authority for removal of encumbrance by the RP on the property of CD. The Respondent No.3 also submitted that in their reply to the I.A. 522/2021 they had prayed for treatment of their....
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....ould be a secured creditor as per sections 53(1)(b)(ii) and not one under section 53 (1)(e) of the I & B Code. 10. I further say that on identical facts, a writ petition under Article 226 of the Constitution of India being Special Civil Application No. 23256 of 2019 is preferred before the Hon'ble High Court of Gujarat which is pending for hearing, wherein the State of Gujarat has challenged the order of the Hon'ble National Company Law Tribunal, Mumbai Branch passed in Misc. Application No.2557 of 2019 in Company Petition No.1514/18BC/NCLT/MB/MAH.2017, wherein the Hon'ble Tribunal has directed the concerned authorities to lift the attachment of the property in question so that, it can be put to sell by the liquidator and thereupon, the proceeds can be distributed under section 53 of the I & B Code. The principal contention which is raised in the writ petition is that State by virtue of section 48 of the Gujarat Value Added Tax Act read with sections 3(4), 3(30) and 3(31) of the 1 & B Code is a secured creditor as per section 3(1)(b)(ii). The Hon'ble Gujarat High Court vide order dated 26.12.2019 was pleased to issue the notice to the respondents and stayed....
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....he following order was passed: "ORDER IA/522(AHM)2021 Ld. Counsel appearing for the State Tax Department submitted that in view of the Hon'ble Supreme Court's judgment in State Tax Officer vs Rainbow Paper Ltd. in Civil Appeal No.1661/2020 they have written a letter to the RP to treat the State Tax Department as a Secured Creditor. Ld. Counsel for the RP submitted that he will take a call on this and he has kept that amount separately. We recorded this fact. Since the Ld. Counsel for the RP seeks some time, the matter stands adjourned. List all the matters on 14.02.2023." 52. It is seen from the above order that RP had not taken a decision about the status of claim of Respondent No.3 till then, but he had kept an amount separately for disbursement to Respondent No.3 which was to be disbursed after a decision about status of the claim. This was duly noted by the Adjudicating Authority. 53. Thereafter the matter was taken up on 22.09.2023 and the following order was passed by the Adjudicating Authority: "Order IA 522 of 2021 Ld. Counsel Mr. Nipun Singhvi appears for the applicant. Ld. Counsel Mr. Radhesh Vyas appears f....
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....tire amount. It is stated by the counsels appearing for the RP that possession of the Corporate Debtor has been given to the Resolution Applicant M/s. Naresh Tradelink Pvt. Ltd., long back post the approval of the Resolution Plan vide order dated 29.06.2022. The only controversy in the matter relates to the distribution of a sum of Rs. 1,31,19,769.08. 26. Civil Appeal No. 1661 of 2020 was decided by Hon'ble Supreme Court on 06.09.2022 whereas it is seen that the Resolution Plan with respect to the Corporate Debtor (herein) was approved on 29.06.2022. The order dated 13.12.2022 rеcords that the RP has kept that amount separately and till today the same has not been distributed. On the other hand, the State Tax Department is claiming to be a Secured Creditor. At this stage, we refer to the judgment of the Hon'ble Supreme Court in Civil Appeal No. 1661 of 2020, more particularly, in para 54 to 58 which are reproduced below:- "54. In our considered view, the Committee of Creditors, which might include financial institutions and other financial creditors, cannot secure their own dues at the cost of statutory dues owed to any Government or Governmental Aut....
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....tax, interest, or penalty "shall be a first charge on the property" of such dealer, notwithstanding anything contained in any other law. This provision automatically creates a charge by operation of law, meaning that it does not depend on any agreement between parties, but arises the moment tax liability crystallizes through assessment. 57. We have already noted that even before the CIRP began, the State Tax Department had already attached the Corporate Debtor's property. This attachment created a valid security interest in favour of the State. The Hon'ble Gujarat High Court in 'Shree Radhekrushna Ginning and Pressing Pvt. Ltd. v. State of Gujarat [C/SCA/5413/2022]' decided on 29.03.2022 held that once such an assessment is made and attachment is affected, a charge over the immovable property comes into existence by operation of Section 48. In this case as the assessment orders become absolute much prior to initiation of CIRP and the attachment was already enforced, therefore, by the time the CIRP began, the State already had a secured right over the property of the CD. 58. Hon'ble Supreme Court in Rainbow Papers (2023) 9 SCC 545 settled the position of law that dues covered ....
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....ty in IA No. 522 of 2021, which had not been decided when the plan was approved on 29.06.2022. Since the issue was sub judice, any appeal against the Resolution Plan would have been premature and unwarranted. The Department rightly awaited adjudication of its pending claim, and therefore its failure to challenge the plan cannot be treated as acquiescence or waiver of its rights. 63. The appellant had argued that the Adjudicating Authority had only two options under Section 31(1) of the Code to either approve or reject a resolution plan and once a plan is approved, the AA cannot revisit it or pass directions which would alter the financial distribution. The AA by directing payment of Rs. 1.31 crores to the State Tax Department, effectively modified the plan and reduced the appellants approved entitlement. Such an act of AA amounts to review of the resolution plan, which is not permitted by the code. The Appellant had also argued that once a plan is approved, the RP ceases to have authority and becomes functus officio. Therefore, any later statement of action by the RP to allocate or reserved money for the State Department was beyond his powers. 64. Section 31(1) of the IBC pro....
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.... the NCLT was obliged to apply it to the pending IA 522 of 2021. Its decision to direct payment to the State Department was therefore not an exercise of review but an application of the prevailing legal position. 70. If we were to hold that the NCLT was powerless to give effect to a Supreme Court judgment in a matter already before it, it would amount to compelling the Tribunal to enforce an order contrary to the highest law of the land, something no court can do. Therefore, the NCLT rightly exercised its jurisdiction to align its order with binding precedent. 71. The Appellant's contention that the Resolution Professional became functus officio after plan approval is also misplaced. The Resolution Professional's responsibilities may cease after plan approval, but where certain matters are pending or reserved, such as distribution of a disputed amount, the implementation of the plan, the RP, as part of Monitoring Committee continues to act under directions of the CoC and the Adjudicating Authority till completion of the process. Here, the RP had only reserved the amount and awaited judicial direction. Therefore, his conduct was consistent with his duties under Section 30(6) o....
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....this case. (iii) Tilokchand Motichand v. H.B. Munshi [(1969) 1 SCC 110]: The decision in this case dealt with the doctrine of finality and the limitation on reopening a case that had already attained final adjudication. Hon'ble Supreme Court held that a litigant cannot revive a matter that has concluded merely because a subsequent judgment has taken a different view of the law. However, the principle laid down in Tilokchand Motichand applies only to cases that had attained absolute finality. In the present matter, the issue concerning the secured status of the State Tax Department had not been finally adjudicated; it was part of a pending application before the NCLT. The Adjudicating Authority merely decided that pending issue in accordance with the Supreme Court's later declaration of law. Hence, the doctrine of finality in Tilokchand Motichand does not operate against the Respondent in this context. (iv) Neelima Srivastava v. State of Uttar Pradesh & Ors. [(2021) SCC OnLine SC 610]: In this case, Hon'ble Supreme Court considered whether a State authority could disregard a judgment that had attained finality merely because a later decision had taken a di....