# STATE TAX OFFICER (1) v. RAINBOW PAPERS LIMITED

- **Citation:** [2022] 13 S.C.R. 808
- **Court:** Supreme Court of India
- **Decided:** 2022-09-06
- **Case number:** Civil Appeal No. 1661 of 2020
- **Bench:** Indira Banerjee, A.S. Bopanna
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/state-tax-officer-1-v-rainbow-papers-limited-35405
- **Pages:** 33

## Headnote

Insolvency and Bankruptcy Code, 2016: ss. 9, 15, 30, 31&53
- Insolvency and Bankruptcy Board of India (Insolvency Resolution
Process for Corporate Persons) Regulations, 2016 - rr. 4, 4A, 6 to
14 - Gujarat Value Added Tax, 2003 - s. 48 - s. 53 of the IBC, if
overrides s. 48 of GVAT - Certain amount due from the respondent
to the Sales Tax authorities towards CST and VAT - Recovery
proceedings initiated and respondent's property attached - Petition
u/s. 9 for initiation of CIRP and Resolution professional-RP was
appointed - Appellant then filed claim before the RP that certain
amount was due under the GVAT Act and RP informed the appellant
that its entire claim had been waived off - Challenge to, by the
appellant -NCLT rejected the application as not maintainable and
holding that the Government cannot claim first charge over the
property of the Corporate Debtor, as s. 48 which provides for first
charge on the property of a dealer in respect of any amount payable
by the dealer on account of tax, interest, penalty etc. under the said
Act, cannot prevail over s. 53 of the IBC - NCLAT dismissed the
appeal as also held that the claim of the State is belated - On appeal,
held: NCLAT erred in holding that s. 53 of the IBC overrides s. 48
of GVAT - s48 of the GVAT Act is not contrary to or inconsistent
with Section 53 or any other provisions of the IBC - Under Section
53(1)(b)(ii), the debts owed to a secured creditor, which would include
the State under the GVAT Act, are to rank equally with other specified
debts including debts on account of workman's dues for a period
of 24 months preceding the liquidation commencement date - State
is a secured creditor under the GVAT Act - s. 3(30) of the IBC defines
secured creditor to mean a creditor in favour of whom security
interest is credited - Such security interest could be created by
operation of law - Definition of secured creditor in the IBC does
not exclude any Government or Governmental Authority -
 [2022] 13 S.C.R. 808
808
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Furthermore, delay in filing a claim cannot be the sole ground for
rejecting the claim-Impugned orders set aside.
Allowing the appeal, the Court
HELD 1.1 The Regulations have to be read as a whole and
not in a truncated manner and interpreted in the light of the
statutory provisions of the IBC. The time lines stipulated in the
IBC even for completion of proceedings are directory and not
mandatory. [Para 23][831-C-D]
1.2 The claims were invited well before the 5th October,
2017 which was the last date for submission of claims. Under the
unamended provisions of Regulation 12(1), the appellant was not
required to file any claim. Read with Regulation 10, the appellant
would only be required to substantiate the claim by production of
such materials as might be called for. The time stipulations are
not mandatory as is obvious from Sub-Regulation (2) of Regulation
14 which enables the Interim Resolution Professional or the
Resolution Professional, as the case may be, to revise the
amounts of claims admitted, including the estimates of claims
made under Sub-Regulation (1) of the said Regulation as soon as
might be practicable, when he came across additional information
warranting such revision. [Para 24][831-D-F]
1.3 There was no obligation on the part of the State to lodge
a claim in respect of dues which are statutory dues for which
recovery proceedings have also been initiated. The appellants
were never called upon to produce materials in connection with
the claim raised by the Appellants towards statutory dues. The
Adjudicating Authority as well as the Appellate Authority/NCLAT
misconstrued the Regulations. [Para 25][831-G]
1.4 The Adjudicating Authority (NCLT) and the Appellate
Authority (NCLAT) have held that the claim of the State is
belated. Regulation 12 of the 2016 Regulations deals with the
time period for submission of a claim along with proof, as stipulated
in the public announcement under Section 15 of the IBC. The
time period is, howeve

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_Characters 0–39,670 of 67,825. This is a partial read: ask again with offset=39670 for what follows._

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SUPREME COURT REPORTS
[2022] 13 S.C.R.
STATE TAX OFFICER (1)
v.
RAINBOW PAPERS LIMITED
(Civil Appeal No. 1661 of 2020)
SEPTEMBER 06, 2022
[INDIRA BANERJEE AND A.S. BOPANNA, JJ.]
Insolvency and Bankruptcy Code, 2016: ss. 9, 15, 30, 31&53
- Insolvency and Bankruptcy Board of India (Insolvency Resolution
Process for Corporate Persons) Regulations, 2016 - rr. 4, 4A, 6 to
14 - Gujarat Value Added Tax, 2003 - s. 48 - s. 53 of the IBC, if
overrides s. 48 of GVAT - Certain amount due from the respondent
to the Sales Tax authorities towards CST and VAT - Recovery
proceedings initiated and respondent's property attached - Petition
u/s. 9 for initiation of CIRP and Resolution professional-RP was
appointed - Appellant then filed claim before the RP that certain
amount was due under the GVAT Act and RP informed the appellant
that its entire claim had been waived off - Challenge to, by the
appellant -NCLT rejected the application as not maintainable and
holding that the Government cannot claim first charge over the
property of the Corporate Debtor, as s. 48 which provides for first
charge on the property of a dealer in respect of any amount payable
by the dealer on account of tax, interest, penalty etc. under the said
Act, cannot prevail over s. 53 of the IBC - NCLAT dismissed the
appeal as also held that the claim of the State is belated - On appeal,
held: NCLAT erred in holding that s. 53 of the IBC overrides s. 48
of GVAT - s48 of the GVAT Act is not contrary to or inconsistent
with Section 53 or any other provisions of the IBC - Under Section
53(1)(b)(ii), the debts owed to a secured creditor, which would include
the State under the GVAT Act, are to rank equally with other specified
debts including debts on account of workman's dues for a period
of 24 months preceding the liquidation commencement date - State
is a secured creditor under the GVAT Act - s. 3(30) of the IBC defines
secured creditor to mean a creditor in favour of whom security
interest is credited - Such security interest could be created by
operation of law - Definition of secured creditor in the IBC does
not exclude any Government or Governmental Authority -
 [2022] 13 S.C.R. 808
808
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Furthermore, delay in filing a claim cannot be the sole ground for
rejecting the claim-Impugned orders set aside.
Allowing the appeal, the Court
HELD 1.1 The Regulations have to be read as a whole and
not in a truncated manner and interpreted in the light of the
statutory provisions of the IBC. The time lines stipulated in the
IBC even for completion of proceedings are directory and not
mandatory. [Para 23][831-C-D]
1.2 The claims were invited well before the 5th October,
2017 which was the last date for submission of claims. Under the
unamended provisions of Regulation 12(1), the appellant was not
required to file any claim. Read with Regulation 10, the appellant
would only be required to substantiate the claim by production of
such materials as might be called for. The time stipulations are
not mandatory as is obvious from Sub-Regulation (2) of Regulation
14 which enables the Interim Resolution Professional or the
Resolution Professional, as the case may be, to revise the
amounts of claims admitted, including the estimates of claims
made under Sub-Regulation (1) of the said Regulation as soon as
might be practicable, when he came across additional information
warranting such revision. [Para 24][831-D-F]
1.3 There was no obligation on the part of the State to lodge
a claim in respect of dues which are statutory dues for which
recovery proceedings have also been initiated. The appellants
were never called upon to produce materials in connection with
the claim raised by the Appellants towards statutory dues. The
Adjudicating Authority as well as the Appellate Authority/NCLAT
misconstrued the Regulations. [Para 25][831-G]
1.4 The Adjudicating Authority (NCLT) and the Appellate
Authority (NCLAT) have held that the claim of the State is
belated. Regulation 12 of the 2016 Regulations deals with the
time period for submission of a claim along with proof, as stipulated
in the public announcement under Section 15 of the IBC. The
time period is, however, not mandatory but only directory. [Para
39][834-G-H]
STATE TAX OFFICER (1) v. RAINBOW PAPERS LIMITED
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SUPREME COURT REPORTS
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1.5 Section 31 of the IBC which provides for approval of a
Resolution Plan by the Adjudicating Authority makes it clear that
the Adjudicating Authority can approve the Resolution Plan only
upon satisfaction that the Resolution Plan, as approved by the
Committee of Creditors (CoC), meets the requirements of
Section 30(2) of the IBC. When the Resolution Plan does not
meet the requirements of Section 30(2), the same cannot be
approved. [Para 41][835-C]
1.6 When a grievance was made before the Adjudicating
Authority with regard to a Resolution Plan, the Adjudicating
Authority was required to examine if the Resolution Plan met
the requirements of Section 30(2) of the IBC. The word "satisfied"
used in Section 31(1) contemplates a duty on the Adjudicating
Authority to examine the Resolution Plan. The Resolution Plan
cannot be approved by way of an empty formality. [Para 43][836F-G]
1.7 There can be no question of acceptance of a Resolution
Plan that is not in conformity with the statutory provisions of
Section 31(2) of the IBC. Section 30(2) (b) of the IBC, casts an
obligation on the Resolution Professional to examine each
resolution plan received by him and to confirm that such resolution
plan provides for the payment of dues of operational creditors,
as specified by the Board, which shall not be less than the amount
to be paid to such creditors, in the event of liquidation of the
Corporate Debtor under Section 53, or the amount that would
have been paid to such operational creditors, if the amount to be
distributed under the resolution plan had been distributed in
accordance with the order of priority in Sub-section 2 of Section
53, whichever was higher, and provided for the payment of debts
of financial creditors, who did not vote in favour of the resolution
plan, in such manner as might be specified by the Board. [Para
45][837-D-F]
1.8 Under Section 31 of the IBC, a resolution plan as
approved by the Committee of Creditors under Sub-Section (4)
of Section 30 might be approved by the Adjudicating Authority
only if the Adjudicating Authority is satisfied that the resolution
plan as approved by the Committee of Creditors meets the
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requirements as referred to in Sub- Section (2) of Section 30 of
the IBC. The condition precedent for approval of a resolution
plan is that the resolution plan should meet the requirements of
Sub-Section (2) of Section 30 of the IBC.[Para 46][837-G-H]
1.9 A resolution plan which does not meet the requirements
of Sub- Section (2) of Section 30 of the IBC, would be invalid and
not binding on the Central Government, any State Government,
any statutory or other authority, any financial creditor, or other
creditor to whom a debt in respect of dues arising under any law
for the time being in force is owed. Such a resolution plan would
not bind the State when there are outstanding statutory dues of a
Corporate Debtor. [Para 48][838-E-F]
1.10 Section 31(1) of the IBC which empowers the
Adjudicating Authority to approve a Resolution Plan uses the
expression "it shall by order approve the resolution plan which
shall be binding..." subject to the condition that the Resolution
Plan meets the requirements of sub- section (2) of Section 30. If
a Resolution Plan meets the requirements, the Adjudicating
Authority is mandatorily required to approve the Resolution Plan.
On the other hand, Sub-section (2) of Section 31, which enables
the Adjudicating Authority to reject a Resolution Plan which does
not conform to the requirements referred to in sub-section (1) of
Section 31, uses the expression "may".[Para 49][838-F-H]
1.11 Ordinarily, the use of the word "shall" connote a
mandate/binding direction, while use of the expression "may"
connote discretion. If statute says, a person may do a thing, he
may also not do that thing. Even if Section 31(2) is construed to
confer discretionary power on the Adjudicating Authority to reject
a Resolution Plan, it has to be kept in mind that discretionary
power cannot be exercised arbitrarily, whimsically or without
proper application of mind to the facts and circumstances which
require discretion to be exercised one way or the other. [Para
50][839-A-B]
1.12 If the established facts and circumstances require
discretion to be exercised in a particular way, discretion has to
be exercised in that way. If a Resolution Plan is ex facie not in
STATE TAX OFFICER (1) v. RAINBOW PAPERS LIMITED
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[2022] 13 S.C.R.
conformity with law and/or the provisions of IBC and/or the Rules
and Regulations framed thereunder, the Resolution would have
to be rejected. It is also a well settled principle of interpretation
that the expression "may", if circumstances so demand can be
construed as "Shall". [Para 51][839-C]
1.13 If the Resolution Plan ignores the statutory demands
payable to any State Government or a legal authority, altogether,
the Adjudicating Authority is bound to reject the Resolution Plan.
In other words, if a company is unable to pay its debts, which
should include its statutory dues to the Government and/or other
authorities and there is no plan which contemplates dissipation
of those debts in a phased manner, uniform proportional
reduction, the company would necessarily have to be liquidated
and its assets sold and distributed in the manner stipulated in
Section 53 of the IBC. [Para 52, 53][839-D-E]
1.15 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 Authority or for that matter, any
other dues. [Para 54][839-F]
1.16 NCLAT erred in its observation that s. 53 of the IBC
overrides s. 48 of GVAT. Section 48 of the GVAT Act is not
contrary to or inconsistent with Section 53 or any other provisions
of the IBC. Under Section 53(1)(b)(ii), the debts owed to a
secured creditor, which would include the State under the GVAT
Act, are to rank equally with other specified debts including debts
on account of workman's dues for a period of 24 months preceding
the liquidation commencement date. [Paras 55,56][839-G; 840B]
1.17 The State is a secured creditor under the GVAT Act.
Section 3(30) of the IBC defines secured creditor to mean a
creditor in favour of whom security interest is credited. Such
security interest could be created by operation of law. The
definition of secured creditor in the IBC does not exclude any
Government or Governmental Authority. [Para 57][840-C]
1.18 The Appellate Authority (NCLAT) and the Adjudicating
Authority erred in law in rejecting the application/appeal of the
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appellant. Delay in filing a claim cannot be the sole ground for
rejecting the claim. [Para 58][840-D]
1.19 The impugned orders are set aside. The Resolution
plan approved by the CoC is also set aside. [Para 59][840-E]
Swiss Ribbons (P) Ltd. v. Union of India (2019) 4 SCC
17 : [2019] 3 SCR 535; Vishal Saxena & Anr. v. Swami
Deen Gupta Resolution Professional (2020) SCC
Online NCLT 2734; Assistant Commissioner of Customs
v. Mathur SabhapathyVishwanathan IBA/578/2019;
NCLT, Chennai Ghanshyam Mishra & Sons (P) Ltd. v.
Edelweiss Asset Reconstruction Co. Ltd. (2021) 9 SCC
657; Ebix Singapore Private Limited v. Committee of
Creditors of Educomp Solutions Limited and Another
(2022) 2 SCC 401 - referred to.
Case Law Reference
[2019] 3 SCR 535
referred to
Para 35
(2021) 9 SCC 657
referred to
Para 42
(2022) 2 SCC 401
referred to
Para 42
CIVIL APPELLATE JURISDICTION : Civil Appeal No.1661
of 2020.
From the Judgment and Order dated 19.12.2019 of the National
Company Law Appellate Tribunal, New Delhi in Company Appeal (AT)
(Insolvency) No.404 of 2019.
With
Civil Appeal No.2568 of 2020.
Tushar Mehta, SG, K. M. Nataraj, ASG, Ms. Aastha Mehtra, Ms.
Vishakha, Ms. Prerana Mohapatra, Vinayak Sharma, Ms. Indira Bhaskar,
Ms. Deepanwita Priyanka, Advs. for the Appellant.
Ankur Kashyap, Ayush Agarwala, Aditi Mittal, Ms. Arushi
Kaulaskar, Ms. Swati Khanvisara, Aman Bajaj, Arnav Narain, Rajesh
Srivastava, Neeraj Datt Gaur, Gaurav Verma, Advs. for the Respondent.
STATE TAX OFFICER (1) v. RAINBOW PAPERS LIMITED
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SUPREME COURT REPORTS
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The Judgment of the Court was delivered by
INDIRA BANERJEE, J.
These appeals under Section 62 of the Insolvency and Bankruptcy
Code, 2016, hereinafter referred to as 'IBC', is against a judgment and
order dated 19th December, 2019, passed by the National Company Law
Appellate Tribunal (NCLAT) dismissing Company Appeal
(AT)(Insolvency) No. 404 of 2019 filed by the Appellant, against an
order dated 27th February 2019 of the Adjudicating Authority, rejecting
the application being I.A No.224/271/272/337 of 2018and P-01 of 2019
in C.P. No. (IB) 88/9/NCLT/AHM/2017 filed by the appellants and
holding that the Government cannot claim first charge over the property
of the Corporate Debtor, as Section 48 of the Gujarat Value Added Tax,
2003, hereinafter referred to as the "GVAT Act", which provides for
first charge on the property of a dealer in respect of any amount payable
by the dealer on account of tax, interest, penalty etc. under the said
GVAT Act,cannot prevail over Section 53 of the IBC.
2. The short question raised by the appellant in this appeal is,
whether the provisions of the IBC and, in particular, Section 53 thereof,
overrides Section 48 of the GVAT Act which is set out herein below for
convenience:-
"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 maybe, such person."
3. The respondent, a company within the meaning of the
Companies Act, 2013 is engaged in the business of manufacture and
sale of Crafts and Oars within and outside the State of Gujarat since
16th April, 1990.
4. The appellant has, from time to time, been assessed for Value
Added Tax (VAT) and Central Sales Tax (CST) under the GVAT Act. It
is stated that an amount of Rs.53,71,65,489/- is due from the Respondent
to the Sales Tax authorities towards CST and VAT, as per the statement
enclosed at Page 44 of the Paper Book.
5. On or about 8th July, 2016, recovery proceedings were initiated
against the respondent, in respect of its dues for the year 2011-2012, and
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the appellant attached the property of the respondent being land at Survey
No.2379 and 2381 situated at Rajpur, Taluka Kadi on 8th October, 2018.
6. One Neeraj Papers Private Limited, as operational creditor of
the respondent, filed Company Petition (IB) No.88 of 2017under Section
9 of the IBCbefore Ahmedabad Bench of the National Company Law
Tribunal (NCLT), for initiation of the Corporate Insolvency Resolution
Process (CIRP) against the respondent.
7. By an order dated 12th September, 2017, the said Company
Petition [Company Petition (IB) No. 88 of 2017] filed by the said Neeraj
Papers Private Limited was admitted. One George Samuel was appointed
Interim Resolution Professional (IRP) on 22nd September, 2017.
8. After appointment of the said George Samuel as IRP, claims
were invited from Creditors under Section 15 of the IBC by issuance of
newspaper publications. The last date for submission of claims was 5th
October 2017.
9. After receipt of claims, a Committee of Creditors (CoC) was
constituted on 10th October 2017. At its first meeting, the CoC passed a
resolution to replace the IRP. Accordingly,Ramachandra D. Choudhary,
a Chartered Accountant, was appointed as Resolution Professional (RP).
The appointment of Mr. Choudhary was approved by the NCLT by an
order dated 6th November 2017.
10. The appellant filed a claim before the RP in the requisite Form
B, claiming that Rs.47.36 crores (approximately), was due and payable
by the respondent to the appellant, towards its dues under the GVAT
Act. The claim was filed beyond time.
11. After admission of the CIRP and appointment of the RP, one
Kushal Limited submitted a Resolution Plan. Various Creditors had
objected to the Resolution Plan.
12. The Tourism Finance Corporation of India Limited, a financial
creditor of the Respondent-Corporate Debtor moved an interlocutory
application No.273 of 2018 contending that the Tourism Finance
Corporation of India Limited had wrongly been categorised as an
unsecured financial creditor.
13. By an order Sr. No.JCCT/Div-4/Mahesana/NCLT/case/
O.W.No.3090 dated 22nd October, 2018, the appellant called upon the
RP to confirm the claim of the appellant towards outstanding tax dues.
STATE TAX OFFICER (1) v. RAINBOW PAPERS LIMITED
[INDIRA BANERJEE, J.]
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[2022] 13 S.C.R.
14. By a letter dated 22nd October, 2018, the Resolution Professional
informed the appellant that the entire claim of the appellant had been
waived off. The order of the RP was conveyed to the appellant by an
email dated 6th November, 2018.
15. On or about 20th December, 2018, the appellant challenged
the Resolution Plan by making an application being I.A No. P-01 of
2019before the Ahmedabad Bench of the NCLT contending that
Government dues could not be waived off. The appellant prayed for
payment of total dues of Rs.47,35,72,314/- towards VAT/CST on the
ground that the Sales Tax Officer was a secured creditor.
16. By an order dated 27th February, 2019 in IA No. 224/271/272/
337 of 2018 and P-01 of 2019 in CP No.(IB) 88 of 2017,the Adjudicating
Authority being the Ahmedabad Bench of the NCLT rejected the
application made by the appellant as not maintainable.The Adjudicating
Authority (NCLT) Ahmedabad held:-
"13.The Resolution Applicant again filed the amended
resolution plan on 26.05.2018. On scrutiny RP issued
certificate on 28.05.2018 in compliance of the Regulation
39(2). Accordingly, RP/the applicant issued notice dated
29.05.2018 for convening the eighth and final meeting of
CoC on 04.06.2018. In the said meeting, CoC sought certain
changes in the plan. In view of that, the Resolution Applicant
was permitted to provide the addendum to the revised plan
within a period of one (1) day which was accepted and duly
acted upon by the Resolution applicant.
14. The said amended revised resolution plan along with the
addendum dated 05.06.2018 was placed for e-voting before
the members of the CoC which took place on two (2) days i.e.
on 06.06.2018 and 07.06.2018. The CoC in their aforesaid
e-voting resolved to approve the resolution plan along with
the addendum with majority of 79.79% voting share in favour
of the Resolution Applicant.
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16. On filing of the application by the RP under Section 30(6)
read with section 31 of the Code, notices were issued to the
CoC and suspended management. CoC approved and
conceded to the fact of filing application by the RP under
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section 33(6) of the Code and have supported the argument
advanced by the Ld. Counsel of the RP. No representation
received from the suspended management."
17. On or about 8th April, 2019, the appellant filed an appeal before
the NCLAT against the aforesaid order dated 27th February 2019 of the
Adjudicating Authority, under Section 61 of the IBC. The appeal has
been dismissed by the NCLAT by the judgment and order impugned.
18. The NCLAT held:-
"34.The Adjudicating Authority noticed that the Appellant
approached the 'Resolution Professional' on 22nd October,
2018 whereas the 'Resolution Plan' dated 26th May, 2018
along with Addendum dated 5th June, 2018 was approved by
the 'Committee of Creditors' with voting majority of 72.79
per cent in favour of the 'Resolution Plan'. Thus, the claim
was made by the Appellant at a much belated stage not only
before the 'Resolution Professional' but also before the
Adjudicating Authority.
35. We find that the Appellant has not filed claim within time.
It approached the 'Resolution Professional' at belated stage
after approval of the 'Resolution Plan' by the Adjudicating
Authority.
36. Learned counsel for the 'Resolution Professional'
submitted that the claim of the Appellant- 'State Tax Officer
(1)' comes within the meaning of 'Operational Debt' as defined
under Section 5(21). The claim of the Appellant also does not
fall within the meaning of 'Secured Creditor' as defined under
Section 3(30) read with Section 3(31) of the I&B Code.
***
38. In view of Statement of Objects and Reasons of the 'I&B
Code' read with Section 53 of the 'I&B Code', the Government
cannot claim first charge over the property of the 'Corporate
Debtor'. Section 48 cannot prevail over Section 53. Therefore,
the Appellant - 'State Tax Officer-(1)' do not come within the
meaning of 'Secured Creditor' as defined under Section 3(30)
read with Section 3(31) of the I&B Code'.
39. Further, as 'Sales Tax Department' filed its claim at belated
stage after the plan had been approved by the 'Committee of
STATE TAX OFFICER (1) v. RAINBOW PAPERS LIMITED
[INDIRA BANERJEE, J.]
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[2022] 13 S.C.R.
Creditors', the 'Resolution Professional' had no jurisdiction
to entertain the same and rightly not entertained."
19. Sections 30 and 31 of the IBC are set out hereinbelow for
convenience:-
"30. Submission of resolution plan.-(1) A resolution applicant
may submit a resolution plan along with an affidavit stating
that he is eligible under Section 29-A to the resolution
professional prepared on the basis of the information
memorandum.
(2) The resolution professional shall examine each resolution
plan received by him to confirm that each resolution plan-
(a) provides for the payment of insolvency resolution process
costs in a manner specified by the Board in priority to the
payment of other debts of the corporate debtor;
(b) provides for the payment of debts of operational creditors
in such manner as may be specified by the Board which shall
not be less than-
(i) the amount to be paid to such creditors in the event of a
liquidation of the corporate debtor under Section 53; or
(ii) the amount that would have been paid to such creditors,
if the amount to be distributed under the resolution plan had
been distributed in accordance with the order of priority in
sub-section (1) of Section 53,
whichever is higher, and provides for the payment of debts of
financial creditors, who do not vote in favour of the resolution
plan, in such manner as may be specified by the Board, which
shall not be less than the amount to be paid to such creditors
in accordance with sub-section (1) of Section 53 in the event
of a liquidation of the corporate debtor.
Explanation 1.-For the removal of doubts, it is hereby
clarified that a distribution in accordance with the provisions
of this clause shall be fair and equitable to such creditors.
Explanation 2.-For the purposes of this clause, it is hereby
declared that on and from the date of commencement of the
Insolvency and Bankruptcy Code (Amendment) Act, 2019, the
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provisions of this clause shall also apply to the corporate
insolvency resolution process of a corporate debtor-
(i) where a resolution plan has not been approved or rejected
by the Adjudicating Authority;
(ii) where an appeal has been preferred under Section 61 or
Section 62 or such an appeal is not time barred under any
provision of law for the time being in force; or
(iii) where a legal proceeding has been initiated in any court
against the decision of the Adjudicating Authority in respect
of a resolution plan;
(c) provides for the management of the affairs of the corporate
debtor after approval of the resolution plan;
(d) the implementation and supervision of the resolution plan;
(e) does not contravene any of the provisions of the law for
the time being in force;
(f)
conforms to such other requirements as may be
specified by the Board.
Explanation.-For the purposes of clause (e), if any approval
of shareholders is required under the Companies Act, 2013
or any other law for the time being in force for the
implementation of actions under the resolution plan, such
approval shall be deemed to have been given and it shall not
be a contravention of that Act or law.
(3) The resolution professional shall present to the committee
of creditors for its approval such resolution plans which
confirm the conditions referred to in sub-section (2).
(4) The committee of creditors may approve a resolution plan
by a vote of not less than sixty-six per cent of voting share of
the financial creditors, after considering its feasibility and
viability the manner of distribution proposed, which may take
into account the order of priority amongst creditors as laid
down in sub-section (1) of Section 53,including the priority
and value of the security interest of a secured creditor, and
such other requirements as may be specified by the Board:
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Provided that the committee of creditors shall not approve a
resolution plan, submitted before the commencement of the
Insolvency and Bankruptcy Code (Amendment) Ordinance,
2017 (Ord. 7 of 2017), where the resolution applicant is
ineligible under Section 29-A and may require the resolution
professional to invite a fresh resolution plan where no other
resolution plan is available with it:
Provided further that where the resolution applicant referred
to in the first proviso is ineligible under clause (c) of Section
29-A, the resolution applicant shall be allowed by the
committee of creditors such period, not exceeding thirty days,
to make payment of overdue amounts in accordance with the
proviso to clause (c) of Section 29-A:
Provided also that nothing in the second proviso shall be
construed as extension of period for the purposes of the
proviso to sub-section (3) of Section 12, and the corporate
insolvency resolution process shall be completed within the
period specified in that sub-section.
Provided also that the eligibility criteria in Section 29-A as
amended by the Insolvency and Bankruptcy Code
(Amendment) Ordinance, 2018 (Ord. 6 of 2018) shall apply
to the resolution applicant who has not submitted resolution
plan as on the date of commencement of the Insolvency and
Bankruptcy Code (Amendment) Ordinance, 2018.
(5) The resolution applicant may attend the meeting of the
committee of creditors in which the resolution plan of the
applicant is considered:
Provided that the resolution applicant shall not have a right
to vote at the meeting of the committee of creditors unless
such resolution applicant is also a financial creditor.
(6) The resolution professional shall submit the resolution plan
as approved by the committee of creditors to the Adjudicating
Authority.
31. Approval of resolution plan.-(1) If the Adjudicating
Authority is satisfied that the resolution plan as approved by
the committee of creditors under sub-section (4) of Section
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30 meets the requirements as referred to in sub-section (2) of
Section 30, it shall by order approve the resolution plan which
shall be binding on the corporate debtor and its employees,
members, creditors, 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, guarantors and other stakeholders involved
in the resolution plan:
Provided that the Adjudicating Authority shall, before passing
an order for approval of resolution plan under this subsection, satisfy that the resolution plan has provisions for its
effective implementation.
(2) Where the Adjudicating Authority is satisfied that the
resolution plan does not confirm to the requirements referred
to in sub-section (1), it may, by an order, reject the resolution
plan.
(3) After the order of approval under sub-section (1),-
(a) the moratorium order passed by the Adjudicating Authority
under Section 14 shall cease to have effect; and
(b) the resolution professional shall forward all records
relating to the conduct of the corporate insolvency resolution
process and the resolution plan to the Board to be recorded
on its database.
(4) The resolution applicant shall, pursuant to the resolution
plan approved under sub-section (1), obtain the necessary
approval required under any law for the time being in force
within a period of one year from the date of approval of the
resolution plan by the Adjudicating Authority under subsection (1) or within such period as provided for in such law,
whichever is later:
Provided that where the resolution plan contains a provision
for combination, as referred to in Section 5 of the Competition
Act, 2002 (12 of 2003), the resolution applicant shall obtain
the approval of the Competition Commission of India under
that Act prior to the approval of such resolution plan by the
committee of creditors."
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20. Section 53 of the IBC, which provides for the mode and manner
for distribution of the proceeds of sale of the assets of a Corporate
Debtor in liquidation, is set out hereinbelow for convenience :-
"53. Distribution of assets.-(1) Notwithstanding anything to
the contrary contained in any law enacted by the Parliament
or any State Legislature for the time being in force, the
proceeds from the sale of the liquidation assets shall be
distributed in the following order of priority and within such
period and in such manner as may be specified, namely-
(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 remaining debts and dues;
(g) preference shareholders, if any; and
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(h) equity shareholders or partners, as the case may be.
(2) Any contractual arrangements between recipients under
sub-section (1) with equal ranking, if disrupting the order of
priority under that sub-section shall be disregarded by the
liquidator.
(3) The fees payable to the liquidator shall be deducted
proportionately from the proceeds payable to each class of
recipients under sub-section (1), and the proceeds to the
relevant recipient shall be distributed after such deduction.
Explanation.-For the purpose of this section-
(i) it is hereby clarified that at each stage of the distribution
of proceeds in respect of a class of recipients that rank
equally, each of the debts will either be paid in full, or will be
paid in equal proportion within the 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
(18 of 2013)."
21. In exercise of power conferred under Sections 5, 7, 9, 14, 15,
17, 18, 21, 24, 25, 29, 30, 196 and 208 read with Section 240 of the IBC,
the Insolvency and Bankruptcy Board of India, hereinafter referred to
as Board, has framed the Insolvency and Bankruptcy Board of India
(Insolvency Resolution Process for Corporate Persons) Regulations,
2016, hereinafter referred to as "the 2016 Regulations". Some of the
relevant provisions of the 2016 Regulations are extracted hereinbelow
for convenience :-
"4. Access to books.-(1) Without prejudice to Section 17(2)(d),
the interim resolution professional or the resolution
professional, as the case may be, may access the books of
account, records and other relevant documents and
information, to the extent relevant for discharging his duties
under the Code, of the corporate debtor held with-
(a) depositories of securities;
(b) professional advisors of the corporate debtor;
(c) information utilities;
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(d) other registries that records the ownership of assets;
(e) members, promoters, partners, board of directors and joint
venture partners of the corporate debtor; and
(f) contractual counterparties of the corporate debtor.
(2) The personnel of the corporate debtor, its promoters or
any other person associated with the management of the
corporate debtor shall provide the information within such
time and in such format as sought by the interim resolution
professional or the resolution professional, as the case may
be.
(3) The creditor shall provide to the interim resolution
professional or resolution professional, as the case may be,
the information in respect of assets and liabilities of the
corporate debtor from the last valuation report, stock
statement, receivables statement, inspection reports of
properties, audit report, stock audit report, title search report,
technical officers report, bank account statement and such
other information which shall assist the interim resolution
professional or the resolution professional in preparing the
information memorandum, getting valuation determined and
in conducting the corporate insolvency resolution process.
4-A. Choice of authorised representative.-(1) On an
examination of books of account and other relevant records
of the corporate debtor, the interim resolution professional
shall ascertain class(s) of creditors, if any.
(2) For representation of creditors in a class ascertained under
sub-regulation (1) in the committee, the interim resolution
professional shall identify three insolvency professionals who
are-
(a) not his relatives or related parties;
(aa) having their addresses, as registered with the Board,in
the State or Union Territory, as the case may be,which has
the highest number of creditors in the class as per their
addresses in the records of the corporate debtor:
Provided that where such State or Union Territory does not
have adequate number of insolvency professionals, the
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insolvency professionals having addresses in a nearby State
or Union Territory, as the case may be, shall be considered;
(b) eligible to be resolution professional under Regulation 3;
and
(c) willing to act as authorised representative of creditors in
the class.
(3) The interim resolution professional shall obtain the consent
of each insolvency professional identified under subregulation (2) to act as the authorised representative of
creditors in the class in Form AB of the Schedule.
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 website, if any, of the corporate debtor; and
(iii) on the website, if any, designated by the Board for the
purpose,
(ba) state where claim forms can be downloaded or obtained
from, as the case may be;
(bb) offer choice of three insolvency professionals identified
under Regulation 4-A to act as the authorised representative
of creditors in each class; and
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(c) provide the last date for submission of proofs of claim,
which shall be fourteen days from the date of appointment of
the interim resolution professional.
(3) The applicant shall bear the expenses of the public
announcement which may be reimbursed by the committee to
the extent it ratifies them.
7. Claims by operational creditors.-(1) A person claiming to
be an operational creditor, other than workman or employee
of the corporate debtor, shall submit claim with proof to the
interim resolution professional in person, by post or by
electronic means in Form B of the Schedule:
Provided that such person may submit supplementary
documents or clarifications in support of the claim before the
constitution of the committee.
(2) The existence of debt due to the operational creditor under
this regulation may be proved on the basis of-
(a) the records available with an information utility, if any;
or
(b) other relevant documents, including-
(i) a contract for the supply of goods and services with
corporate debtor;
(ii) an invoice demanding payment for the goods and services
supplied to the corporate debtor;
(iii) an order of a court or tribunal that has adjudicated upon
the non-payment of a debt, if any; or
(iv) financial accounts.
(v) copies of relevant extracts of Form GSTR-1 and Form
GSTR-3B filed under the provisions of the relevant laws
relating to Goods and Services Tax and the copy of e-way
bill wherever applicable:
Provided that provisions of this sub-clause shall not apply to
those creditors who do not require registration and to those
goods and services which are not covered under any law
relating to Goods and Services Tax.
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8. Claims by financial creditors.-(1) A person claiming to be
a financial creditor, other than a financial creditor belonging
to a class of creditors, shall submit claim with proof to the
interim resolution professional in electronic form in Form C
of the Schedule:
Provided that such person may submit supplementary
documents or clarifications in support of the claim before the
constitution of the committee.
(2) The existence of debt due to the financial creditor may be
proved on the basis of-
(a) the records available with an information utility, if any;
or
(b) other relevant documents, including-
(i) a financial contract supported by financial statements as
evidence of the debt;
(ii) a record evidencing that the amounts committed by the
financial creditor to the corporate debtor under a facility
has been drawn by the corporate debtor;
(iii) financial statements showing that the debt has not been
paid; or
(iv) an order of a court or tribunal that has adjudicated upon
the non-payment of a debt, if any.
8-A.