SC Held That Claim of State Basis Statutory Charge Would Fall Within Meaning of “Security Interest” Under IBC

Our undertakings for long-term impact are an organic extension of our purpose.

They are to employ our deep knowledge of the law beyond the business, the transaction, the deal. To use the opportunities and skills we possess, to reflect on the culture we’re creating. Individually and collectively, these are our efforts to help shape the thinking of our future generations, and arm them with strategies for true, sustainable growth.

Sep 30, 2022

SC Held That Claim of State Basis Statutory Charge Would Fall Within Meaning of “Security Interest” Under IBC

In State Tax Officer v. Rainbow Papers Ltd,^[1] the Hon’ble SC has held that a claim of the State under Section 48 of the Gujarat Value Added Tax, 2003 which specifically provides that ‘Government will be a ‘first charge on the property of the dealer’’, would fall within the meaning of the term ‘Security Interest’ as defined under Section 3(31) of the IBC, and therefore, the State would become a ‘Secured Creditor’ under Section 3(30) of the IBC. The SC held that Section 48 of the Gujarat Value Added Tax, 2003 is not contrary to Section 53 of the IBC and thus a resolution plan which ignores the statutory demands payable to any State Government or a legal authority is liable to be rejected by the Adjudicating Authority.

[1] State Tax Officer v. Rainbow Papers Ltd, 2022 SCC OnLine SC 1162.

DISCLAIMER

These are the views and opinions of the author(s) and do not necessarily reflect the views of the Firm. This article is intended for general information only and does not constitute legal or other advice and you acknowledge that there is no relationship (implied, legal or fiduciary) between you and the author/AZB. AZB does not claim that the article's content or information is accurate, correct or complete, and disclaims all liability for any loss or damage caused through error or omission.