TaxTMI 
TaxTMI 
2026 (4) TMI 1232
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....he properties purchased under public auction conducted under the provisions of the 'Insolvency Bankruptcy Code, 2016' (hereinafter referred to as 'the IBC'). 3. The following of the brief facts, which are necessary for the disposal of the Writ Appeal, are as follows: 3.1. The subject property originally held by the third respondent viz., RLS Alloys Private Limited. On the basis of the application filed by one M/s.Foseco India Limited, an operational creditor, the third respondent company was ordered to be liquidated by the 'National Company Law Tribunal' (hereinafter referred to as 'NCLT'), vide order dated 14.06.2019. As there was no successful resolution application, the NCLT ordered the company into liquidation. In a public auction conducted by the liquidator, the Writ Petitioner become successful bidder and has purchased the property on 24.10.2024. It is relevant to note that for tax arrears under the Tamil Nadu Value Added Tax, the order of attachment was passed by the first respondent as early as on 03.02.2016. The same has been reflected in the Encumbrance Certificate. The Writ Petitioner being successful auction purchaser under the IBC ....
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....e Added Tax Act, 2006, makes it clear that arrears of tax could operate as a charge on the properties of the person liable to pay such tax, penalty or interest. This aspect has already been decided in the Rainbow Papers's case. 6.1. Hence, it is their submission that as long as there is a statutory right created, the attachment cannot be raised. Therefore, their submission is that the learned Single Judge is right. They also placed reliance on the judgment of the Division Bench of this Court in W.P.No. 26362 of 2024, dated 01.09.2025, to buttress their submissions. Further, it is their contention that there is no provision to remove the attachment in the Registration Act. In support of their contention, they relied on a judgment of the Hon'ble Supreme Court in Tamil Nadu Mercantile Bank Ltd., Vs. Sub Registrar and another reported in 2024 SCC OnLine Mad 5692. 7. We have heard the submissions made on either side and perused the materials available on record. 8. The admitted fact is that the first respondent has sent a letter dated 10.08.2020, bearing reference Rc.No.169/2020/A5, to the Resolution Professional, indicating that the amount payable to the first responde....
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....f demand, and arrears of such tax would operate as a charge on the properties of the person liable to pay such tax, penalty or interest. 12. Section 3(30) of the IBC defines "secured creditor" as follows: "secured creditor" means a creditor in favour of whom security interest is created" 13. Section 3(31) defines "security interest" as follows: "security interest" means right, title or interest or a claim to property, created in favour of, or provided for a secured creditor by a transaction which secures payment or performance of an obligation and includes mortgage, charge, hypothecation, assignment and encumbrance or any other agreement or arrangement securing payment or performance of any obligation of any person: Provided that security interest shall not include a performance guarantee." 14. The question as to whether a statutory dues of Central and State Governments would stand extinguished upon the approval of the resolution plan under Section 31 of the IBC, came up for consideration before the Supreme Court in Ghanashyam Mishra & Sons (P) Ltd. v. Edelweiss Asset Reconstruction Co. Ltd., reported in (2021) 9 SCC 657, wherein it was held as follows....
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....note that Section 238 of the IBC contains a non-obstante clause giving primacy to the mechanism for distribution of the assets of the corporate debtor in the manner prescribed under the IBC. 17. The learned Single Judge, in the impugned judgment, has held that the authorities under the TNVAT Act are secured creditors and that the VAT dues could, therefore, be recovered as if they were dues payable to a secured creditor. 18. In STO v. Rainbow Papers Ltd., reported in (2023) 9 SCC 545, the question before the Hon'ble Supreme Court was whether the provisions of Section 53 of the IBC would override the provisions of Section 48 of the Gujarat VAT Act. Section 48 of the said Act reads as follows: "48. Tax to be first charge on property.- Notwithstanding anything to the contrary contained in any law for the time being in force, any amount payable by a dealer or any other person on account of tax, interest or penalty for which he is liable to pay to the Government shall be a first charge on the property of such dealer, or as the case may be, such person." 19. The Department had challenged the resolution plan approved by the Resolution Professional, whereby th....
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....ection of the claim of the STO, since the unamended Regulation did not required the STO to file a claim, but only required to substantiate the claim with such material as may be called for. However, the present case arises after the amendment to Regulation 12, under which there can be no manner of doubt that "a creditor shall submit a claim with proof on or before the last date mentioned in the public announcement". In the case on hand, the Department had, in fact, preferred its claim belatedly, which came to be rejected by the NCLT. In the context of submission of claims, the Hon'ble Supreme Court in RPS Infrastructure Ltd. v. Mukul Kumar, reported in (2023) 10 SCC 718, has held that belated claims cannot be entertained under the scheme of the IBC. 22. As a matter of fact, STO v. Rainbow Papers Ltd., reported in (2023) 9 SCC 545, arose at the stage of the Corporate Insolvency Resolution Process (CIRP) and not at the stage of liquidation, as in the present case. In Paschimanchal Vidyut Vitran Nigam Ltd. v. Raman Ispat (P) Ltd., reported in (2023) 10 SCC 60, PVVL had attached the properties of the secured creditor for non-payment of electricity dues amounting to Rs. 4,32,33,883/-....
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....he decision in Rainbow Papers's case was affirmed on merits. However, subsequent to the aforesaid decision, the ratio laid down in the said case was once again distinguished in JSW Steel Ltd. v. Pratishtha Thakur Haritwal, reported in (2025) 9 SCC 673, wherein it was held as follows: "44. In Rainbow Papers's case the State Tax Officer had raised the claim before the CoC, which was not taken into consideration by the CoC. As such, this Court came to a finding that the satisfaction arrived at by the adjudicating authority under Section 31 of the Code was vitiated. 45. Undoubtedly, in the present case, in spite of public notice, neither the State of Chhattisgarh nor its authorities raised any claim before the CoC. In that view of the matter, we are of the considered view that the case of the present petitioner is specifically covered by the judgment of this Court in Ghanashyam Mishra, which judgment was brought to the notice of the respondents/authorities, the respondents/authorities could not have proceeded with the recovery proceedings." 26. It is to be noted that in Rainbow Papers's case, the VAT authorities had specifically challenged the rejection....
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.... 03.12.2018 when Mr.Ramasamy Shanmugam was appointed as an Insolvency Resolution Professional (IRP), the claims of the 1st Respondent as a secured creditor cannot be defeated......" 29. The learned Single Judge has overlooked the fact that the decision in Rainbow Papers Ltd. arose under the unamended Regulation 12, which did not require a statutory authority to file a separate claim, which is not the position after the amendment to Regulation 12. As a matter of fact, in the entire judgment, there is no reference to Regulation 12 at all. At the risk of repetition, the relevant paragraphs in Rainbow Papers's case Ltd. are once again extracted hereunder: "22. Prior to amendment by Notification No.IBBI/2018-19/GN/REG013 dated 3rd July 2018, with effect from 4th July, 2018, Sub-Regulation (1) of Regulation 12 read with Sub-Regulation (2) provided that a creditor shall submit proof of claim on or before the last date mentioned in the public announcement. Sub-Regulation (2) was amended with effect from 4th July, 2018 and now reads "a creditor shall submit claim with proof on or before the last date mentioned in the public announcement. ....... In this cas....
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....tion; it does not confer title." A charge is only a security for the payment of money due (see Dattatreya Shanker Mote v. Anand Chintaman Datar, reported in (1974) 2 SCC 799). In the context of Section 48 of the Gujarat Value Added Tax Act, in Shree Radhekrushna Ginning and Pressing Pvt. Ltd. v. State of Gujarat [SCA No. 5413 of 2022], decided on 29.03.2022, it was held as follows: "16. The concept of charge emanates from Section 100 of the Transfer of Property Act, 1882. Section 100 of the Transfer of Property Act, 1882 defines "charge" as follows: "100. Charges.- Where immoveable property of one person is by act of parties or operation of law made security for the payment of money to another, and the transaction does not amount to a mortgage, the latter person is said to have a charge on the property; and all the provisions hereinbefore contained which apply to a simple mortgage shall, so far as may be, apply to such charge. Nothing in this section applies to the charge of a trustee on the trust- property for expenses properly incurred in the execution of his trust, and, save as otherwise expressly provided by any law for the time being in force, no charge shall....
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....vided for a secured creditor by a transaction, which secures payment or performance of an obligation and includes mortgage, charge, hypothecation, assignment and encumbrance or any other agreement or arrangement securing payment or performance of any obligation of any person." 37. This interpretation has given rise to certain issues. The Insolvency and Bankruptcy Code (Amendment) Bill, 2025 clarifies that security interests, including statutory charges in respect of government dues, shall be treated as "secured" only where such interest is created by way of contract. This marks a departure from the position laid down by the Hon'ble Supreme Court in State Tax Officer v. Rainbow Papers Ltd. (2022 SCC OnLine SC 1162), wherein statutory dues were accorded the status of secured debts. The said Amendment Bill was introduced in the Lok Sabha on 12.08.2025, has since received the assent of the President on 06.04.2026, and has been published in the Official Gazette. 38. Section 2 of the Amendment Act amends Section 3(31) of the Insolvency and Bankruptcy Code, thereby clarifying the nature of "security interest", which reads as follows: "Explanation. For the removal of doubts,....
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....s of the real owner qua properties held benami and in this connection it has taken away the right of the real owner both for filing a suit or for taking such a defence in a suit by benamidar. Such an Act which prohibits benami transactions and destroys rights flowing from such transactions as existing earlier is really not a declaratory enactment. With respect, we disagree with the line of reasoning which commanded to the Division Bench. In this connection, we may refer to the following observations in 'Principles of Statutory Interpretation', 5th Edition 1992, by Shri G.P. Singh, at page 315 under the caption 'Declaratory statutes' :- The presumption against retrospective operation is not applicable to declaratory statutes. As states in CRAIES and approved by the Supreme Court : "For modern purposes a declaratory Act may be defined as an Act to remove doubts existing as to the common law, or the meaning or effect of any statute. Such Acts are usually held to be retrospective. The usual reason for passing a declaratory Act is to set aside what Parliament deems to have been a judicial error whether in the statement of the common law or in the interpretation ....
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....vernmental authority shall be a secured creditor as the charge created by a statutory law can be considered as a 'security interest'. The definition of 'security interest' under the Code means that a right, title or interest or a claim to property, created in favour of, or provided for a secured creditor by a transaction, which secures payment of performance of an obligation. It is intended to be restricted to 'transactions', which means that the security interest should be created pursuant to an agreement on the part of the asset holder while giving rights to the other party. Further, 'transaction', as defined under section 3 (33), includes an agreement or arrangement in writing to transfer assets, funds, goods, or services from or to the CD. Thus, it is clear that the concept of security interest was intended to cover a consensual transaction between parties (and not any similar interest created through mere operation of a statute) Clause 2 of the Bill seeks to insert an explanation in clause (31) of section 3 of the Code to clarify that security interest shall exist only when it creates a right, title or interest or a claim to a property pursuant to an agreement or arrangement b....
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....ority to delete an entry already reflected in the Encumbrance Certificate. In this regard, a Division Bench of this Court in Tamil Nadu Mercantile Bank Ltd. v. Sub Registrar and Another in W.P. No. 15451 of 2024, held as follows: "21. With regard to deletion of the entry, namely, the attachment in favour of the 2nd respondent, we do not find any provisions in the Registration Act which permit the registering authorities to delete an entry which is already finding place in the Encumbrance Register/Certificate. However, in terms of the customary practice and well settled procedure, the Registrar is duty bound to cause a contra entry stating that the said attachment in favour of the 2nd respondent stands raised in view of the exercise of the priority right by the Petitioner Bank by bringing the property for sale in public auction and consequently, conveying the said property in favour of the auction purchaser, Mrs.Kala Ramu. Insofar as this limb of the prayer, we therefore direct the 1st respondent to make an entry in the Encumbrance Records to reflect in the Encumbrance Certificate, notifying that the attachment in favour of the 2nd respondent in entry, Document No.04 of 202....