Madras High Court
M/S.Avenue Realty (A Partnership Firm) vs The Assistant Commissioner on 14 August, 2025
Author: C.Saravanan
Bench: C. Saravanan
2025:MHC:1989
W.P.(MD) No.8260 of 2025
BEFORE THE MADURAI BENCH OF MADRAS HIGH COURT
Reserved on 14.07.2025
Pronounced on 14.08.2025
CORAM
THE HON'BLE MR.JUSTICE C. SARAVANAN
W.P.(MD) No.8260 of 2025
and
W.M.P.(MD) No.6197 of 2025
M/s.Avenue Realty (A Partnership Firm)
represented by its Managing Partner
Mr.T.M.Elayaraja,
Registered Office : No.39/19 Second Floor,
1st Cross Street, West CIT Nagar,
Nandanam, Chennai – 600 035. ... Petitioner
Vs.
1.The Assistant Commissioner
Srirangam (GST Circle)
Moolathoppu Melur Road,
Srirangam, Tiruchirappalli - 620 006.
2.The Sub Registrar,
Keezhsathanur,
Palani Road, K.K.Nagar,
Tiruchirappalli, Tamil Nadu 620 001.
3.RLS Alloys Private Limited
(Under Liquidation)
Rep. by its Liquidator,
Mr.S.R.Shiraam Shekher,
CIN: U27108TN2006PTC058862
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W.P.(MD) No.8260 of 2025
Rep. by its Managing Director/
Authorised Representative,
S.F.No.118/1, 2, 3,
Sethurapatti Road, Fathima Nagar,
Tiruchirappalli, Tamil Nadu,
India - 620 012. ... Respondents
PRAYER : Writ Petition filed under Article 226 of the Constitution of
India, for issuance of a Writ of Certiorarified Mandamus, calling for the
records relating to the attachment order over the subject properties as
mentioned in Schedule A to the writ petition, issued by the first
respondent dated 03.02.2016 bearing reference No.Na.Ka.115/A3/2016
and quashing the same as arbitrarily and illegally sustained, despite taking
legal recourse under the provisions of the Insolvency and Bankruptcy
Code, 2016 and consequently, directing the second respondent to remove
and lift the attachment from the encumbrance certificate.
For Petitioner : Mr.T.Mohan, Senior Counsel
for Mr.V.G.Suresh Kumar
For R1 & R2 : Mr.R.Suresh Kumar
Additional Government Pleader
For R3 : M/s.K.H.Dhanya Dheekshitha
ORDER
The Petitioner has challenged the Attachment Order dated
03.02.2016, bearing Reference No. Na.A.115/A3/2016 (hereinafter
referred as the ‘impugned Attachment Order’). By the impugned
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W.P.(MD) No.8260 of 2025
Attachment Order dated 03.02.2016, the 1st Respondent has attached the
property of RLS Alloys Pvt Ltd/3rd Respondent under TNVAT Act, 2006
for arrears of VAT for the Assessment Years 2007-2008 to 2014-2015 for
a sum of Rs.2,11,57,636/-.
2. Relevant portion of the impugned Attachment Order dated
03.02.2016 passed by the 1st Respondent is extracted hereunder:-
“ghh;itapy; fhZk; ,t;tYtyf nray;Kiw
Mizfspd;gb jpU.gp.jkpouR> Chpikahsh; jps;.
RLS ALLOYS (P) LTD-S.F.No.118/1-3, Sethurappatty
Road, Fathima Nagar, Trichy-12 (TIN:
33633463227)-2007-2008 Kjy; 2014-2015 tiu
cs;s Mz;bw;F tzpfk; nra;j tifapy;
thpj;njhif &.2,11,57,636/- muRf;F nrYj;j
Ntz;bAs;sJ. tzpfUf;F thpepYitapid
nrYj;jpl mwptpg;G toq;;fpa gpd;dUk;>
thpepYitapid nrYj;jtpy;iy. NkYk; muRf;F
Vw;gLk; tUtha; ,og;gpid jtph;f;Fk; nghUl;L
tzpfhpd; ngahpy; cs;s ,lj;jpy; cs;s
nrhj;Jf;fs; kPJ tpy;yq;fk; Vw;gLj;jp Nkw;gb
gjpNtl;bd; efiy cld; ,t;tYtyfj;jpw;F
mDg;gpitf;FkhW md;Gld; Nfl;Lf;nfhs;fpNwd;.”FACTUAL BACKGROUND OF THE CASE:-
3. The Petitioner has purchased the property in an auction
conducted by the Liquidator appointed by the National Company Law
Tribunal (NCLT) on 24.10.2024, during the course of liquidation of the
3rd Respondent company. The 3rd Respondent is represented by its
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W.P.(MD) No.8260 of 2025Liquidator, namely Mr.S.R.Shiraam Shekher. The 3rd Respondent issued a
Submission of Claims on 23.01.2025.
4. The 3rd Respondent company was ordered to be liquidated by the
National Company Law Tribunal, Single Bench, Chennai, vide order
dated 14.06.2019, in a petition filed by M/s.Foseco India Limited, an
operational creditor, under Section 9 of the Insolvency and Bankruptcy
Code, 2016 (hereinafter referred to as the ‘Code’), read with Rule 6 of the
Insolvency and Bankruptcy (Application to Adjudicating Authority)
Rules, 2016.
5. Earlier by an order dated 03.12.2018, Mr.Ramasamy Shanmugam
was appointed as an Interim Resolution Professional by the National
Company Law Tribunal.
6. After Mr.Ramasamy Shanmugam was appointed on 03.12.2018
as an Interim Resolution Professional (IRP), took over the management of
the Corporate Debtor, namely RLS Alloys Pvt Ltd/3rd Respondent (now
represented by Liquidator, Mr.S.R.Shiraam Shekher. The Interim
Resolution Professional (IRP) presided over the first meeting of the
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W.P.(MD) No.8260 of 2025Committee of Creditors on 18.01.2019. Mr.Ramasamy Shanmugam, the
IRP, thus, issued an advertisement on 25.04.2019 and invited expression
of intent for proposed Resolution Authority for Resolution Professional.
7. In the said first meeting of the Committee of Creditors held on
18.01.2019, the said Mr.Ramasamy Shanmugam, who was appointed on
03.12.2018 as the Interim Resolution Professional (IRP), was appointed as
Resolution Professional (RP).
8. Thereafter, the third meeting of the Committee of Creditors was
held on 25.04.2019 and the 4th meeting of the Committee of Creditors was
held on 28.05.2019, where the Committee of Creditors unanimously
passed the resolution for liquidation of the company.
9. In this background, Mr.Ramasamy Shanmugam, Interim
Resolution Professional (IRP) filed a petition in M.A.No.559 of 2019 in
C.P./661(IB)/CB/2017 under Section 33(2) of the Code for the following
relief:
i. To pass an order for liquidation of the Corporate
Debtor (M/s.RLS Alloys Private Limited).
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W.P.(MD) No.8260 of 2025ii. To appoint the Resolution Professional as Liquidator
for administering the Liquidation Process of the
Corporate Debtor and
iii. To pass such other orders which may be deems fit and
proper.
10. The NCLT thus passed its Order dated 14.06.2019 in M.A.No.
559 of 2019 in C.P./661(IB)/CB/2017 and ordered as follows:-
“III. The moratorium declared under Section 14
of the I&B Code, 2016, shall cease to have effect from
the date of the order of liquidation;
IV. Subject to Section 52 of the I&B Code, 2016,
no suit or other legal proceedings shall be instituted
by/or against the Corporate Debtor. However, a suit
and other legal proceedings may be instituted by the
Liquidator, on behalf of the Corporate Debtor, with the
prior approval of this Authority.
V. This Authority makes it clear that Para (IV)
hereinabove shall not apply to legal proceedings in
relation to such transactions as notified by the Central
Government in consultation with any financial sector
regulator.
VI. This Order shall be deemed to be a notice of
discharge to the officers, employees and workmen of
the Corporate Debtor, except when the business of the
Corporate Debtor is continued during the liquidation
process by the Liquidator.
VII. All the powers of the Board of Directors, Key
Managerial Personnel and the Partners of the_______________
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W.P.(MD) No.8260 of 2025Corporate Debtor, as the case may be, shall cease to
have effect and shall be vested with the Company
Liquidator viz., Mr. Ramasamy Shanmuggam.
VIII. The personnel of the Corporate Debtor
shall extend all assistance and co-operation to the
Liquidator as may be required by him in managing the
affairs of the Corporate Debtor.
IX. The Company Liquidator shall be entitled to
charge such fees for the conduct of the liquidation
proceedings and in such a proportion to the value of
the liquidation estate assets as specified under
Regulation 4 of Insolvency and Bankruptcy Board of
India (Liquidation Process) Regulations, 2016.
X. Copy of this Order shall be sent to the
concerned Registrar of Companies, RD, OL, and
Registered Office of the Corporate Debtor by the
Company Liquidator viz., Mr.Ramasamy Shanmuggam
for information and compliance.
10. In terms of the above, MA/559/2019 filed in
CP/661/IB/2017 by the Resolution Professional under
Section 33 (2) of the I&B Code, 2016, for initiation of
the Liquidation Proceedings against the Corporate
Debtor viz., 1/s.RLS Alloys Private Limited, stands
allowed.”
11. In this background, the 1st Respondent, Assistant Commissioner,
Srirangam GST Circle, issued a communication dated 10.08.2020, bearing
reference Rc.No.169/2020/A5, to the Resolution Professional,
Mr.R.Shanmugam.
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12. In the said communication, the 1st Respondent, Assistant
Commissioner, Srirangam GST Circle, expressed the Department’s
inability to recover the dues directly from the 3rd Respondent and,
therefore, requested that the property of the 3rd Respondent be sold, and
the dues recovered and be paid to the Department. The prayer in the said
communication reads as under:
“5) As the revenue to the Government become
due, and as the company is not in a position to pay the
arrears, the amount mentioned above may be taken into
consideration and it is requested to settle the sales tax
dues to the Government when the sale proceeds on the
property (movable/immovable) is made.”
13. Thus, in no uncertain terms, Mr.R.Shanmugam, Resolution
Professional, who was appointed as a Liquidator vide Order dated
14.06.2014, was aware of the request of the 1st Respondent, Assistant
Commissioner Srirangam (GST Circle), vide aforesaid communication
bearing dated 10.08.2020 reference Rc.No.169/2020/A5.
14. In this background, a claim petition was filed by the 1 st
Respondent before the 3rd Respondent, the Liquidator, on 10.08.2020. The
same was rejected on 24.08.2020 by the Official Liquidator.
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15. Meanwhile, the subject property was thereafter sold on
24.10.2024 by the Official Liquidator, and a Sale Certificate was also
issued to the Petitioner on 23.01.2025 by the Official Liquidator.
16. The Petitioner paid a sum of Rs.3,05,55,143/-. However, the
registration of the subject property is now pending in view of the
Impugned Attachment Order dated 03.02.2016 bearing reference
No.Na.A.115/A3/2016 of the property by the 1st Respondent, Assistant
Commissioner Srirangam GST Circle.
17. Aggrieved by the said rejection on 24.08.2020 by the
Liquidator, the 1st Respondent, Assistant Commissioner Srirangam GST
Circle approached the NCLT in IA/372(CHE)/2022 in MA/559/2019 on
07.09.2022 against the Order of the Liquidator dated 24.08.2020. The said
application was however dismissed for non-prosecution on 08.01.2024
with the following observations:
“This application was filed on 07.09.2022. Even
on the last date, none for the Applicant was present.
Even Rejoinder is not filed despite time given.
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W.P.(MD) No.8260 of 2025It appears that Applicant is not interested in the
prosecution of this application.
The application in IA/372(CHE)/2022 IN
MA/559/2019 is dismissed in default and for non-
prosecution.”
18. Thereafter, the 1st Respondent, Assistant Commissioner,
Srirangam GST Circle, filed another application in I.A.No.01/2025 in
IA/372(CHE)/2022 in MA/559/2019 on 07.12.2024 before the NCLT
seeking condonation of delay in filing an application for restoration of the
earlier application that was dismissed on 08.01.2024. However, the
NCLT, by its order dated 07.02.2025, dismissed the said application with
the following observations:
“As seen from the application, the Applicant came to
know of the order immediately but this application has
been filed on 07.12.2024 i.e., after about eleven months
though it should have been filed within 30 days from
the dismissal of the application. Admittedly, this
application relates to tax claim and for the State
Exchequer but it is expected from the parties to be
vigilant and diligent while making and pursuing the
application. Strangely, even restoration application has
been filed with a delay of 304 days.”_______________
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19. On 10.07.2023, Mr.S.R.Shriraam Shekher was appointed as the
Liquidator replacing Mr.Ramasamy Shanmugam by National Company
Law Tribunal.
SUBMISSION ON BEHALF OF THE PETITIONER:-
20. The learned Senior Counsel for the Petitioner submits that the
1st Respondent attached the property purchased by the Petitioner, on
account of non-payment of Tamil Nadu Value Added Tax and Central
Sales Tax by the 3rd Respondent.
21. It is submitted by the learned Senior Counsel for the Petitioner
that the 1st Respondent filed its claim before the Official Liquidator after a
delay of one year, and the same was rejected. This decision has attained
finality, as the 1st Respondent thereafter approached the NCLT by filing
an Interlocutory Application in I.A. (IBC)/372(CHE)/2022, which was
dismissed for default on 08.01.2024. A subsequent application in Rest.
Application No.1 of 2025, filed for condonation of delay in restoring the
earlier application, was also dismissed on 07.02.2025.
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22. It is therefore submitted by the learned Senior Counsel for the
Petitioner that the 1st Respondent is unjustly enriching itself at the cost of
other stakeholders, including the Petitioner. It is further submitted that the
underlying claim has long since been extinguished, akin to an attachment
without a decree.
23. It is submitted by the learned Senior Counsel for the Petitioner
that during the liquidation process under the Insolvency and Bankruptcy
Code, 2016, the secured and operational creditors, who have created a
charge or attachment on the assets of a corporate debtor, are required to
release such attachment on the property of the corporate debtor to enable
the sale of such property and ensure realization of its value.
24. It is further submitted that, by virtue of the procedure enshrined
under the Insolvency and Bankruptcy Code, 2016, once the sale proceeds
are realized, the same shall be distributed among the creditors and other
stakeholders of the corporate debtor in accordance with the waterfall
mechanism under Section 53 of the Code.
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25. Therefore, the remedy of the 1st Respondent, if any, to realize its
dues would lie in the manner postulated and enshrined in the said
waterfall mechanism.
26. It is further submitted that as per Regulation 47 of the
Insolvency and Bankruptcy (Liquidation Process) Regulations, 2016, the
liquidation process should be completed within a period of one year from
the date of its initiation. The action of the 1st Respondent in disregarding
the provisions of the Insolvency and Bankruptcy Code, 2016, by not
lifting the attachment on the subject properties, amounts to manifest
arbitrariness and is violative of Article 14 of the Constitution of India.
27. It is further submitted that the Insolvency and Bankruptcy
Code, 2016 is a special statute, and by virtue of the non-obstante clause
under Section 238 of the Insolvency and Bankruptcy Code, 2016, its
provisions shall have an overriding effect in cases of inconsistency with
any other law, including the Tamil Nadu Value Added Tax Act, 2006 and
the Central Sales Tax Act, 1956.
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28. Arguing on behalf of the Petitioner, the learned Senior Counsel
would draw the attention of this Court to the following decisions:
i. Paschimanchal Vidyut Vitran Nigam Limited v.
Raman Ispat Private Limited and others, reported
in (2023) 10 SCC 60.
ii. KRBL Ltd. v. State of Gujarat, reported in [2023]
154 taxmann.com 489 (Gujarat).
iii. Su-Kam Power System Ltd. and another v. State of
Himachal Pradesh and others, reported in [2025]
253 Comp Cas 511 (HP).
29. It is further submitted that further appeal before the NCLT
under Section 61(2) of the Insolvency and Bankruptcy Code, 2016 has
also expired. It is therefore submitted that this is the fit case for quashing
the Impugned Attachment Order.
SUBMISSIONS ON BEHALF OF THE RESPONDENT:-
30. Per contra, the learned Additional Government Pleader for the
1st and 2nd Respondents submits that the 3rd Respondent, the Official
Liquidator, filed an application under Section 23 of the Insolvency and
Bankruptcy Code, 2016, before the NCLT for removal of the attachment
made by the 1st Respondent, which was dismissed by the NCLT vide order
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dated 02.06.2022. It is submitted that against the said order of the NCLT
dated 02.06.2022, the 3rd Respondent/Official Liquidator filed Company
Appeal (AT)(INS) No.412 of 2022, and a successful bidder/e-auction
purchaser, namely G.Subramanian, who is none other than the partner of
the Petitioner, filed Company Appeal (AT)(INS) No.334 of 2023, before
the National Company Law Appellate Tribunal (NCLAT). It is therefore
submitted that Company Appeal (AT)(INS) No.412 of 2022 filed by the
official liquidator was also dismissed on 29.04.2025, and hence, the
attachment on the subject properties made by the 1st Respondent stands
automatically confirmed.
31. It is submitted that the submission of the Petitioner, that the
rejection of the 1st Respondent’s claim before the 3rd Respondent/Official
Liquidator has attained finality, as the application filed by the 1st
Respondent for condonation of delay in restoring the earlier application
dismissed for default on 08.01.2024 was also dismissed on 07.02.2025,
cannot be accepted, for the reason that against the said dismissal, the 1st
Respondent has filed an appeal before the NCLAT, and the issue is now
sub judice.
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32. The learned Additional Government Pleader for the 1st and 2nd
Respondents further submits that the subject properties were sold through
public auction on an ‘as-is-where-is, whatever-there-is’ basis, and that the
sale notice categorically reflected the nature of title and encumbrances. It
is submitted that the attachment by the 1st Respondent was lawfully made
on 03.02.2016 and was duly recorded in the Encumbrance Certificate well
before the auction took place.
33. It is submitted by the learned Additional Government Pleader
that the 1st Respondent had lawfully attached the subject property of the
3rd Respondent on 03.02.2016, much prior to the initiation of the CIRP
proceedings on 03.12.2018, under Sections 42 and 49 of the Tamil Nadu
Value Added Tax Act, 2006, for recovery of tax dues amounting to Rs.
2,11,54,636/- for the Assessment Years 2007-2008 to 2014-2015, which
takes priority in law, as held in multiple precedents. These statutory
provisions continue to apply by virtue of Section 142(8)(a) of the CGST
Act, 2017. Therefore, it is prayed for dismissal of this Writ Petition.
34. The learned Additional Government Pleader appearing for the
1st and 2nd Respondent relied on the following judgments:
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W.P.(MD) No.8260 of 2025i. Sanjay Kumar Agarwal vs. State Tax Officer (1)
and another, reported in (2024) 2 SCC 362.
ii. State Tax Officer vs. Rainbow Papers Limited,
reported in (2023) 9 SCC 545.
iii. Ghanashyam Mishra and Sons Private Limited
through the authorised Signatory vs. Edelweiss
Asset Reconstruction Company Limited through
the Director and others, reported in (2021) 9 SCC
657.DISCUSSION:-
35. I have considered the arguments advanced by the learned Senior
Counsel for the Petitioner, the learned Additional Government Pleader for
the 1st and 2nd Respondents and the learned counsel for the 3rd Respondent.
BRIEF FACTS OF THE CASE:-
36. In the present case, the Resolution Professional filed an
application to liquidate the 3rd Respondent/Operational Debtor, namely
RLS Alloys (P) Ltd., which was proceeded against under Section 9 of the
Code by the operational creditor, namely, FOSECO (P) Ltd.
37. The NCLT, vide order dated 03.01.2018, allowed the
application filed by the operational creditor and appointed Mr.Ramasamy
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Shanmugam as an Interim Resolution Professional (IRP) under Section 13
of the Code. The IRP was also required to comply with the provisions of
Sections 13(2), 15, 17, and 18 of the Code.
38. The promoters and directors of the assessee-in-default/corporate
debtor viz the operational debtor, and persons associated with its
management, were directed to extend assistance and cooperation in terms
of Section 19 of the Code, to enable the IRP to discharge his functions
under Section 20 of the Code.
39. Since no meaningful resolution application was filed under
Section 33(2) of the Code for the corporate insolvency resolution of the
operational debtor (assessee in default), the Interim Resolution
Professional (IRP) appointed by the NCLT by its order dated 03.12.2018
convened a meeting of the Committee of Creditors (CoC), during which it
was recommended to appoint valuers and issue the Expression of Interest
in Form G. This was after the Interim Resolution Professional (IRP) was
confirmed as the Resolution Professional (RP) on 18.01.2019.
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40. In the meeting of the Committee of Creditors (CoC), the
Resolution Professional (RP) placed the Expressions of Interest received
from M/s.MAK Auto Services and Ferrosco Industries Private Limited.
However, the Committee of Creditors (CoC) rejected the Expressions of
Interest and passed a resolution for the liquidation of the operational
debtor, namely RLS Alloys (P) Ltd.
41. It is in this background the liquidation proceedings began under
Section 33(2) of the Code. As per Section 33(2), where the Resolution
Professional, at any time during the Corporate Insolvency Resolution
Process (CIRP) but before the confirmation of the resolution plan,
intimates the Adjudicating Authority of the decision of the Committee of
Creditors (CoC) (approved by not less than sixty-six per cent of the voting
share) to liquidate the corporate debtor, the Adjudicating Authority shall
pass a liquidation order as referred to in sub-clauses (i), (ii), and (iii) of
clause (b) of sub-section (1).
42. It is in this background, the Interim Resolution Professional
(IRP) appointed vide order dated 03.12.2018 in CP/661/(IB)/CB/2017,
who was subsequently designated as the Resolution Professional (RP) in
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the first meeting of the Committee of Creditors (CoC) held on 18.01.2019
was appointed as the Liquidator by NCLT vide its Order dated 14.06.2019
in MA/559/2019 filed in CP/661/IB/2017.
43. By its order dated 14.06.2019 in MA/559/2019 in
CP/661/IB/2017, the Resolution Professional was to liquidate the assets of
the Corporate Debtor (assessee in default), namely the 3rd
Respondent/RLS Alloys (P) Ltd.
44. After the aforesaid order was passed by the NCLT on
14.06.2019, the 1st Respondent, Assistant Commissioner of GST,
Srirangam, sent a letter on 10.08.2020 bearing reference Rc.No.
169/2020/A5, wherein it was stated that the said company was in arrears
of Rs.2,74,63,181/-.
45. It was further informed that, since revenue had become due to
the Government and the company was under liquidation and was not in a
position to pay the arrears, the above amount should be taken into
consideration and requested that the sales tax dues be settled from and out
of the sale proceeds of the company’s movable and immovable properties.
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46. In the said communication, the 1st Respondent enclosed a copy
of the assessment order along with the ‘C’ notice issued under the IBC. It
is to be borne in mind that the assets of the said company were attached as
early as 03.02.2016, and the encumbrance to that effect was reflected
pursuant to the communication dated 03.02.2016.
47. Thus, the point for consideration is whether, as a “secured
creditor” within the meaning of Section 3(30) of the IBC, 2016, the
Commercial Taxes Department, represented by 1st Respondent, was
required to file a claim petition within the time stipulated in the order
passed on 03.12.2018 under Section 13 of the Code, and within the period
stipulated in the public announcement regarding the last date for
submission of claims under Section 15(1)(c) of the Code or whether the 1st
Respondent was required to file a claim petition at all?
48. As per Section 45(6) of the Tamil Nadu Value Added Tax Act,
2006, any amount that a person is required to pay to the assessing
authority, or for which he is personally liable under this section, shall, if it
remains unpaid, constitute a charge on the properties of such person and
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may be recovered as if it were an arrear of land revenue. Section 45(6) of
the TNVAT Act, 2006 reads as under:
45. Further mode of recovery
(1) ….
…….
(6) Any amount which a person required to pay to the
assessing authority or for which he is personally liable
to the assessing authority under this section shall, if it
remains unpaid, be a charge on the properties of the
said person and may be recovered as if it were an
arrear of land revenue.
DEFINITIONS FROM THE CODE:-
49. To understand the scope of the Code, it will be useful to refer to
few definitions in the Code. The expression “Adjudicating Authority” has
been defined in Section 5(1) of the Code, which reads as under:
5. Definitions.
In this Part, unless the context otherwise requires,–
(1) Adjudicating Authority, for the purposes of this
Part, means National Company Law Tribunal
constituted under section 408 of the Companies Act,
2013 (18 of 2013);
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50. The expression “’debt” has been defined in Section 3(11) of the
Code, which reads as under:
3. Definitions.—In this Code, unless the context
otherwise requires,—(11) “debt” means a liability or obligation in respect of
a claim which is due from any person and includes a
financial debt and operational debt;
51. The expression “claim” has been defined in Section 3(6) of the
Code, which reads as under:-
(6) “claim” means –
(a) a right to payment, whether or not such right is
reduced to judgment, fixed, disputed, undisputed,
legal, equitable, secured, or unsecured;
(b) right to remedy for breach of contract under any law
for the time being in force, if such breach gives rise
to a right to payment, whether or not such right is
reduced to judgment, fixed, matured, unmatured,
disputed, undisputed, secured or unsecured;
52. The expression “creditor” has been defined under Section 3(10)
of the Code. It includes a financial creditor, an operational creditor, a
secured creditor, an unsecured creditor, and a decree-holder. The
definition of “creditor” under Section 3(10) of the Code reads as under:
3. Definitions.—In this Code, unless the context
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(10) “creditor” means any person to whom a debt is
owed and includes a financial creditor, an operational
creditor, a secured creditor, an unsecured creditor and
a decree-holder;
53. The expression “secured creditor” has been defined in Section
3(30) of IBC, which means a creditor in favour of whom security interest
is created. The definition of “secured creditor” in Section 3(30) of the
Code reads as under:
3. Definitions.—In this Code, unless the context
otherwise requires,—(30) “secured creditor” means a creditor in favour of
whom security interest is created;
54. The expression used is “security interest” in the above
definition. It has been defined under Section 3(31) of the Code. The
definition of “security interest” in Section 3(31) of the Code reads as
under:
3. Definitions.—In this Code, unless the context
otherwise requires,—(31) “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_______________
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W.P.(MD) No.8260 of 2025mortgage, 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;
55. The expression “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. As per proviso to Section
3(31) of IBC, “security interest” does not include a “performance
guarantee”.
56. The expressions ‘financial creditor’, ‘operational creditor’ and
‘corporate applicant’ have been defined as under:
Financial Creditor Operational Creditor Corporate Applicant
Section 5. Definitions – In this Part, unless the context otherwise requires,–
Section 5(7) of the Code Section 5(20) of the Section 5(5) of the Code
Code_______________
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W.P.(MD) No.8260 of 2025(7) financial creditor (20) operational (5) corporate applicant
means any person to creditor means a person means–
whom a financial debt is to whom an operational
owed and includes a debt is owed and includes (a) corporate debtor; or
person to whom such any person to whom such
debt has been legally debt has been legally (b) a member or partner
assigned or transferred to assigned or transferred; of the corporate debtor
who is authorised to make
an application for the
corporate insolvency
resolution processs or the
pre-packaged insolvency
resolution process, as the
case may be, under the
constitutional document
of the corporate debtor; or
(c) an individual who is
in charge of managing the
operations and resources
of the corporate debtor; or
(d) a person who has the
control and supervision
over the financial affairs
of the corporate debtor;
57. The Income Tax Department or for that matter any other Tax
Department are a “secured creditor” within the meaning of Section 3(30)
of the Code, if they have already passed an assessment order and have
attached the assets of such assessee i.e., the “corporate debtor” in
accordance with the provisions of the respective Direct and Indirect Tax
enactments. Thus, the Commercial Taxes Department, represented by the
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1st Respondent, is a ‘secured creditor’ within the meaning of Section
3(30) of the Code.
58. A ‘secured creditor’ creditor stands under a different footing
under the Code where there liquidation is ordered directly without the
‘corporate debtor’ undergoing a ‘Corporate Insolvency Resolution Process’
(CIRP).
59. In this connection, the Hon’ble Supreme Court in State Tax
Officer vs. Rainbow Papers Limited, (2023) 9 SCC 545 has also held as
under:
“29. As argued by the learned Solicitor General,
the term “secured creditor” as defined under IBC is
comprehensive and wide enough to cover all types of
security interests, namely, the right, title, 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.
30. The learned Solicitor General rightly argued
that in view of the statutory charge in terms of Section
48 of the GVAT Act, the claim of the Tax Department of
the State, squarely falls within the definition of
“security interest” under Section 3(31) IBC and the_______________
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the Code.
SCHEME OF IBC:-
60. It will be useful to refer to the scheme of Insolvency and
Bankruptcy Code, 2016. The background of the scheme of IBC was to
unify the legal regime on commercial insolvency.
61. The insolvency resolution process can be triggered against a
corporate debtor’s failure to repay a debt and when the value of the
default crosses the threshold as defined in Section 4 of the Code. The
Corporate Insolvency Resolution Process (CIRP) can be initiated by a
Corporate Debtor itself or a Financial Creditor or a Operational Creditor
as defined in Section 6 of the Code.
62. A scheme for ‘Corporate Insolvency Resolution Process’ (CIRP)
under the provisions of the Code starts with the admission of application
by the Adjudicating Authority under Section 13 of the Code under
Sections 7, 9 or 10 of the Code, followed by Declaration of Moratorium
and Public Announcement.
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63. For the purpose of discussion, it would suffice to state that the
National Company Law Tribunal (NCLT), constituted under Section 408
of the Companies Act, 2013, is the Adjudicating Authority contemplated
under Section 13 onwards of the Code.
64. The Adjudicating Authority is empowered to admit the
application under Sections 7, 9 and 10 of the Code. These are the
proceedings for initiation of Corporate Insolvency Resolution Process
(CIRP) by a “Financial Creditor”, or “Operational Creditor” or a
“Corporate Applicant” itself respectively.
65. A Petition under Section 9 of the Code has to preceede a notice
contemplated under Section 8 of the Code. The “Corporate Debtor” is
expected to respond to the said notice within a period of 10 days. It is only
after the expiry of 10 days from the date of delivery of the notice under
Section 8(1) of the Code, an “Operational Creditor” can initiate
proceedings under Section 9 of the Code.
66. Once the ‘Corporate Insolvency Resolution Process’ (CIRP) is
admitted by the Adjudicating Authority, the Adjudicating Authority has to
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declare a “Moratorium” in terms of Section 14 of the Code and appoint an
Interim Resolution Professional (IRP) in the manner laid down under
Section 16 of the Code, for issuance of a public announcement of the
initiation of the ‘Corporate Insolvency Resolution Process’ (CIRP) for the
submission of “claims” under Section 15 of the Code.
67. Thus, the initiation of the ‘Corporate Insolvency Resolution
Process’ (CIRP), although can be at the behest of a “Financial Creditor”,
or a “Operational Creditor”, or a “Corporate Applicant” as the case
maybe, as provided under Sections 7, 9, and 10 of the Code, it has to be
followed with a declaration of “Moratorium” and “Public Announcement”
under Section 13 of the Code.
68. The “Public Announcement” of the initiation of the ‘Corporate
Insolvency Resolution Process’ (CIRP) has to contain the details specified
under Section 15(1)(a) to (f) of the Code., namely:-
(a) name and address of the corporate debtor under the
corporate insolvency resolution process;
(b) name of the authority with which the corporate debtor is
incorporated or registered;
(c) the last date for submission of claims, as may be
specified;
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(d) details of the interim resolution professional who shall be
vested with the management of the corporate debtor and
be responsible for receiving claims;
(e) penalties for false or misleading claims; and
(f) the date on which the corporate insolvency resolution
process shall close, which shall be the one hundred and
eightieth day from the date of the admission of the
application under sections 7, 9 or section 10, as the case
may be.
69. The Corporate Insolvency Resolution Process (CIRP) can either
result in rehabilitation of a “Corporate Debtor” against whom proceedings
have been initiated under Sections 7, 9, or 10 of the Code or result directly
in liquidation of the “Corporate Debtor” under Section 33 of the Code.
70. Reading of Section 29 of the Code read with Regulation 36 of
the 2016 Regulations reveals that a Resolution Professional (RP)
appointed has to prepare an “Information Memorandum” containing
various details of the “Corporate Debtor” so that a Resolution Applicant
who intends to submit a “Resolution Plan” (RP) is aware of the assets and
liabilities of the “Corporate Debtor”, including the details about the
“Creditors” and the amounts claimed by them.
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71. The “Information Memorandum” is required to contain the
details of the guarantees that have been given in relation to the debts of
the Corporate Debtor by other persons and the details with regard to all
material litigation and an ongoing investigation or proceeding initiated by
the Government and statutory authorities are also required to be detailed
in the information memorandum. So also the details regarding the number
of workers and employees and liabilities of the corporate debtor towards
them and other Statutory Authorities are required to be contained in the
Information Memorandum.
72. Section 29 of the Code is reproduced below:-
“29. Preparation of information memorandum. –
(1) The resolution professional shall prepare an
information memorandum in such form and manner
containing such relevant information as may be
specified by the Board for formulating a resolution
plan.
(2) The resolution professional shall provide to
the resolution applicant access to all relevant
information in physical and electronic form, provided
such resolution applicant undertakes-
(a) to comply with provisions of law for the time
being in force relating to confidentiality and insider
trading;
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(b) to protect any intellectual property of the
corporate debtor it may have access to; and
(c) not to share relevant information with third
parties unless clauses (a) and (b) of this sub-section are
complied with.
Explanation. – For the purposes of this section,
“relevant information” means the information required
by the resolution applicant to make the resolution plan
for the corporate debtor, which shall include the
financial position of the corporate debtor, all
information related to disputes by or against the
corporate debtor and any other matter pertaining to the
corporate debtor as may be specified.”
73. Thus, the Resolution Professional (RP) is required to take note
of pre-exsiting charges. The details contained in the Information
Memorandum is intended to equip a Resolution Applicant about the
liabilities of the Corporate Debtor to prepare a “Resolution Plan”, which
apart from satisfying a part of such liabilities would also ensure that the
Corporate Debtor is revived and made a running establishment.
74. Section 30 of the Code deals with the submission of a
Resolution Plan. It is reproduced below:-
“30. Submission of resolution plan. –
(1) A resolution applicant may submit a
resolution plan along with an affidavit stating that he is_______________
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W.P.(MD) No.8260 of 2025eligible under section 29A 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 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.
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Explanation 2. — For the purpose 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 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) confirms 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(18 of 2013) or any
other law for the time being in force for the
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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:
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 29A
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 29A, 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 29A:
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W.P.(MD) No.8260 of 2025Provided 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
subsection:
Provided also that the eligibility criteria in
section 29A as amended by the Insolvency and
Bankruptcy Code (Amendment) Ordinance, 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.”
75. The legislative intent of making the Resolution Plan binding on
all stakeholders after it gets the seal of approval of the Adjudicating
Authority and after it is approved by CoC, if the Resolution Plan meets all
the requirement of in sub-section (2) of Section 30 of the Code. Section
31 of the Code is reproduced below:-
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W.P.(MD) No.8260 of 2025“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 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, 2 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 sub-section, 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
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date of approval of the resolution plan by the
Adjudicating Authority under sub-section (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, 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.
76. It is to ensure that after the approval of a Corprate Resolution
Plan by NCLT, no surprise claims are flung on a successful Resolution
Applicant. The idea is to ensure that a Corprate Debtor thereafter starts
with a clean slate with a new management or new committment on the
basis of the Resolution Plan approved by the Adjudicating Authority
(NCLT) under Section 31 of the Code.
77. Thus, the Corporate Insolvency Resloution Process (CIRP)
first involves a steps towards the rehabilitation of the “Corporate Debtor”
defined under Section 3(8) of the Code. An Interim Resolution
Professional (IRP) appointed by an adjudicating authority under is
required to keep up with the duties prescribed under Section 18 of the
Code, namely,:-
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(a) collect all information relating to the assets,
finances and operations of the corporate debtor for
determining the financial position of the corporate
debtor, including information relating to—
(i) business operations for the previous two
years;
(ii) financial and operational payments for the
previous two years;
(iii)list of assets and liabilities as on the
initiation date; and
(iv) such other matters as may be specified;
(b) receive and collate all the claims submitted by
creditors to him, pursuant to the public announcement
made under sections 13 and 15;
(c) constitute a committee of creditors;
(d) monitor the assets of the corporate debtor and
manage its operations until a resolution professional is
appointed by the committee of creditors;
(e) file information collected with the information
utility, if necessary; and
(f) take control and custody of any asset over which the
corporate debtor has ownership rights as recorded in
the balance sheet of the corporate debtor, or with
information utility or the depository of securities or any
other registry that records the ownership of assets
including—
(i) assets over which the corporate debtor has
ownership rights which may be located in a
foreign country;
(ii) assets that may or may not be in possession
of the corporate debtor;
(iii) tangible assets, whether movable or
immovable;
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(iv) intangible assets including intellectual
property;
(v) securities including shares held in any
subsidiary of the corporate debtor, financial
instruments, insurance policies;
(vi) assets subject to the determination of
ownership by a court or authority;
(g) to perform such other duties as may be specified by
the Board.
78. It is the duty of the Interim Resolution Professional (IRP) to
protect and preserve the value of the property of the Corporate Debtor. It
is further the duty of the Interim Resolution Professional (IRP) to make an
application before the Adujdicating Authority, viz. NCLT, i) listing the
financial creditors, and ii) the name of the Insolvency Professional (IP) to
be appointed as the Resolution Professional (RP) under Section 21 of the
Code.
79. Section 33(1)(b) of the Code contemplates that, where the
Adjudicating Authority rejects the resolution plan under Section 31 or
where there is non-compliance with the requirements specified therein, it
shall pass an order requiring the corporate debtor to be liquidated in the
manner laid down in this Chapter, issue a public announcement stating
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that the corporate debtor is in liquidation, and direct that a copy of the
order be sent to the authority with which the corporate debtor is
registered. Section 33 of the Code reads as under:
“33. Initiation of liquidation
(1) Where the Adjudicating Authority, –
(a) before the expiry of the insolvency resolution
process period or the maximum period permitted for
completion of the corporate insolvency resolution
process under section 12 or the fast track corporate
insolvency resolution process under section 56, as the
case may be, does not receive a resolution plan under
sub-section (6) of section 30; or
(b) rejects the resolution plan under section 31
for the non-compliance of the requirements specified
therein,
it shall –
(i) pass an order requiring the corporate debtor to
be liquidated in the manner as laid down in this
Chapter;
(ii) issue a public announcement stating that the
corporate debtor is in liquidation;and
(iii) require such order to be sent to the authority
with which the corporate debtor is registered.
(2) Where the resolution professional, at any time
during the corporate insolvency resolution process but
before confirmation of resolution plan, intimates the
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W.P.(MD) No.8260 of 2025committee of creditors approved by not less than sixty-
six per cent. of the voting share to liquidate the
corporate debtor, the Adjudicating Authority shall
pass a liquidation order as referred to in sub-clauses
(i), (ii) and (iii) of clause (b) of sub-section (1).
(3) Where the resolution plan approved by the
Adjudicating Authority is contravened by the concerned
corporate debtor, any person other than the corporate
debtor, whose interests are prejudicially affected by
such contravention, may make an application to the
Adjudicating Authority for a liquidation order as
referred to in sub-clauses (i), (ii), (iii) of clause (b) sub-
section (1).
(4) On receipt of an application under sub-section (3),
if the Adjudicating Authority determines that the
corporate debtor has contravened the provisions of the
resolution plan, it shall pass a liquidation order as
referred to in sub-clauses (i), (ii) and (iii) of clause (b)
of sub-section (1).
(5) Subject to section 52, when a liquidation order has
been passed, no suit or other legal proceeding shall be
instituted by or against the corporate debtor: Provided
that a suit or other legal proceeding may be instituted
by the liquidator, on behalf of the corporate debtor,
with the prior approval of the Adjudicating Authority,
(6) the provisions of sub-section (5) shall not apply to
legal proceedings in relation to such transactions as
may be notified by the Central Government in
consultation with any financial sector regulator.
(7) The order for liquidation under this section shall be
deemed to be a notice of discharge to the officers,
employees and workmen of the corporate debtor, except
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when the business of the corporate debtor is continued
during the liquidation process by the liquidator.
80. Under the Companies Act, 1956, ordinarily Claim Petitions are
filed only after a company is/was ordered to be wound up under it.
Official Liquidators were appointed to liquidate the assets of the
Company which would ultimately culminate in dissolution of the
Company.
81. In this case, the Resolutional Professional (RP) proceeded to
implement the decision of Committee of Creditors (CoC) to liquidate the
3rd Respondent/RLS Alloys Pvt Ltd under Section 33(2) of the Code. An
elaborate procedure has been prescribed for winding up followed by
liquidatation and dissolution of a company.
82. Under the Code there is a slight variation. The decision as to
whether to revive a “Corporate Debtor” or to spell its death knell under
Section 33(1)(b) of the Code is in the hands of the Committee of Creditors
(CoC) under the Code. The Resolution Professional (RP) merely informs
the Adjudicating Authority about their decision.
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83. In the present case, the “Corporate Debtor” namely, the 3rd
Respondent/RLS Alloys Private Ltd, did not go through the rigmorale of
Corporate Insolvency Resoluton Plan (CIRP). In this case, the
“Corporate Debtor” namely, RLS Alloys Private Ltd, the 3rd Respondent
was ordered to be liquidated by the Committee of Creditors (COC) in
their meeting held on 28.05.2019 and thus, its assets were brought to sale
by the Resolution Professional (RP).
84. As per Section 53 of the Code, the proceeds from the sale of the
assets during the liquidation of the “Corporate Debtor” are to be
distributed in a prescribed manner. The hierarchy for distribution of assets
of a “Corporate Debtor” to the creditors is popularly referred to as the
“waterfall mechanism”. Section 53(1) of the Code reads as under:
“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 as may be specified, namely: –
(a) The insolvency resolution process costs and the
liquidation costs paid in full;
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(b) The following debts which shall rant 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
(h) equity shareholders or partners, as case may be.
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85. After the procedure prescribed under Section 53 of the Code is
followed, the affairs of a “Corporate Debtor” is dissolved under Section
54 of the Code. Section 54 of the Code reads as under:
54. Dissolution of corporate debtor. –
(1) Where the assets of the corporate debtor have
been completely liquidated, the liquidator shall
make an application to the Adjudication
Authority for the dissolution of such corporate
debtor.
(2) The Adjudicating Authority shall on application
filed by the liquidator under sub-section (1)
order that the corporate debtor shall be
dissolved from the date of that order and the
corporate debtor shall be dissolved accordingly.
(3) A copy of an order under sub-section (2) shall
within seven days from the date of such order, be
forwarded to the authority with which the
corporate debtor is registered.
86. Presently, under the Companies Act, 2013, a separate chapter
has been prescribed for winding up of a Company in Chapter XX. It is
divided into four parts. They are as follows:-
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W.P.(MD) No.8260 of 2025Part-I Part-II Part-III Part-IV
Winding Up Omitted Provisions applicable Official Liquidators
to every mode of
winding up
Section 270 Section to Section 304 Section 324 to Section Section 359 to Section
303 to Section 358 365
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W.P.(MD) No.8260 of 2025Part-I Part-II Part-III Part-IV
270. Winding up by the 324. Debts of all 359. Appointment of
Tribunal descriptions to be Official Liquidator
271. Circumstances in admitted to proof 360. Powers and
which company may be 325. [Omitted] functions of Official
wound by Tribunal 326. Overriding Liquidator
272. Petition for winding preferential payments 361. Summary
up 327. Preferential procedure for
273. Powers of Tribunal payments liquidation
274. Directions for filing 328. Fraudulent 362. Sale of assets and
statement of affairs preference recovery of debts due
275. Company 329. Transfers not in to company
Liquidators and their good faith to be void 363. Settlement of
appointments 330. Certain transfers to claims of creditors by
276. Removal and be void Official Liquidator
replacement of liquidator 331. Liabilities and 364. Appeal by creditor
277. Intimation to rights of certain persons 365. Order of
Company Liquidator, fraudulently preferred dissolution of company
Provisional Liquidator 332. Effect of floating
and Registrar charge
278. Effect of winding 333. Disclaimer of
up order onerous property
279. Stay of suits, etc., 334. Transfers, etc., after
on winding up order commencement of
280. Jurisdiction of winding up to be void
Tribunal 335. Certain
281. Submission of attachments, executions,
report by Company etc., in winding up by
Liquidator Tribunal to be void
282. Directions of 336. Offences by
Tribunal on report of officers of companies in
Company Liquidator liquidation
283. Custody of 337. Penalty for frauds
company’s properties by officers
284. Promoters, 338. Liability where
Directors etc., to proper accounts not kept
cooperate with Company 339. Liability for
Liquidator fraudulent conduct of
285. Settlement of list of business
contributions and 340. Power of Tribunal
application of assets to assess damages
286. Obligations of against delinquent
Directors and Managers directors, etc.,
287. Advisory 341. Liability under
Committee Sections 339 and 340 to
288. Submission of extent to partners or
periodical reports to directors in firms or
Tribunal companies
289. [Omitted] 342. Prosecution of
290. Powers and duties delinquent officers and
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87. A similar provision was also available in the Sick Industrial
Companies (Special Provisions) Act, 1985, wherein Section 20 deals with
the winding up of companies. It reads as follows:-
“20. Winding up of sick industrial company.—
(1) Where the Board, after making inquiry under
section 16 and after consideration of all the relevant
facts and circumstances and after giving an opportunity
of being heard to all concerned parties, is of opinion
that the sick industrial company is not likely to make its
net worth exceed the accumulated losses within a
reasonable time while meeting all its financial
obligations and that the company as a result thereof is
not likely to become viable in future and that it is just
and equitable that the company should be wound up, it
may record and forward its opinion to the concerned
High Court.
(2) The High Court shall, on the basis of the
opinion of the Board, order winding up of the sick
industrial company and may proceed and cause to
proceed with the winding up of the sick industrial
company in accordance with the provisions of the
Companies Act, 1956 (1 of 1956).
(3) For the purpose of winding up of the sick
industrial company, the High Court may appoint any
officer of the operating agency, if the operating agency
gives its consent, as the liquidator of the sick industrial
company and the officer so appointed shall for the
purposes of the winding up of the sick industrial
company be deemed to be, and have all the powers of,
the official liquidator under the Companies Act, 1956
(1 of 1956).
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(4) Notwithstanding anything contained in sub-
section (2) or sub- section (3), the Board may cause to
be sold the assets of the sick industrial company in such
manner as it may deem fit and forward the sale
proceeds to the High Court for orders for distribution
in accordance with the provisions of section 529A, and
other provisions of the Companies Act, 1956 (1 of
1956).
88. The Sick Industrial Companies (Special Provisions) Act, 1985
was repealed by Sick Industrial Companies Act, 2003 with effect from
01.01.2004.
89. As far as the winding up of the Company under the Companies
Act, 1956 is/was concerned, the Hon’ble Supreme Court after consulting
the High Courts, framed the Companies (Court) Rules, 1959 in exercise of
its powers conferred under Section 643(1) and Section 643(2) of the
Companies Act, 1956.
90. Under Rule 9 of the Companies (Court) Rules, 1959, Courts are
/were vested with an inherent power to give such directions or pass such
orders as may be necessary for the ends of justice or to prevent abuse of
the process of the Court. This is similar to the powers are vested with the
Hon’ble Supreme Court under Article 142 of the Constitution of India in
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its quest to do complete justice. However, such a provision is absent
under the Code or the Rules made thereunder.
91. The essence of the Companies (Court) Rules, 1959, has now
been incorporated under the Code with such changes that are consistent
with the object of the Code to speed track the process either by subjecting
the company to be rehabilitated or to liquidate it.
92. Under Rule 7 of the Companies (Court) Rules, 1959, Courts
have also been vested with the power to enlarge or abridge the time
appointed under the Rules or fixed by the Court for doing any act or
taking any proceeding, upon such terms (if any) as the justice of the case
may require and any such enlargement may be ordered, although the
application for the same is not made until after the expiration of the time
appointed or allowed.
93. Rule 7 of the Companies (Court) Rules, 1959 was perhaps by
inspired from Section 148 of the Code of Civil Procedure, 1908.
94. Similarly, under Rule 8 of the Companies (Court) Rules, 1959, a
method was prescribed for computation of time. This was again by
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incorporating the principle under the General Clauses Act, 1897. Rule 8
of the of the Companies (Court) Rules, 1959 is reproduced below:-
Rule 8. Computation of time
(a) Where any particular number (b) Where any particular number
of days not expressed to be clear of days expressed to be clear
days, is prescribed the same shall days, is prescribed, the same shall
be reckoned exclusively of the be reckoned exclusively of both
first day and inclusively of the the first and the last day.
last day, unless the last day shall
happen to fall on a day on which
the offices of the Court are
closed, in which case the time
shall be reckoned exclusively of
that day also and of any
succeeding day or days on which
the offices of the Court continued
to be closed.
95. Even as on date, where the Claim Petitions are invited in respect
of Companies which are under liquidation under the provisions of the
Companies Act, 1956 and where ever there is/was delay, the Court
entertain(s) the Claim Petitions beyond the period prescribed so as to
ensure that legitimate interest of (a) creditor(s) is/are not lost even when
the date prescribed for filing the Claim Petition have already expired.
96. The procedure to windup a company under Section 433 of the
Companies Act, 1956 is now vastly different under the Companies Act,
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2013 and under the Code.
97. Under Section 433 of the Companies Act, 1956 there were
six instances when a company could be ordered to be wound up after
following procedure, apart from voluntary winding up under Chapter IV
of Part VII of the Companies Act, 1956.
98. Under Section 271 of the Companies Act, 2013, there is a
slight departure. Only five of the circumstances, under Section 433 of the
Companies Act, 1956 have been specified for winding up of a company
before the NCLT under the provisions of the Companies Act, 2013.
99. However, in case of inability of a corporate debtor to the pay
the amount due to its creditors or where the company wants certain
relief, it has to be under the provisions of the Code.
100. Under the Companies Act, 1957 once a company is ordered to
be wound up, a Liquidator is appointed for its liquidation. Liquidation
commences with the issuance of a notice by the Official Liquidator
requiring the creditors to file a claim petition within such time.
Liquidation would culminate in dissolution of the company.
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101. However, under Section 13 of the Code, once admission of
application under Section 7, 9 or 10 is made, Corporate Insolvency
Resolution Process (CIRP) commences with appointment of Interim
Resolution Professional (IRP). The Interim Resolution Professional (IRP)
has to call for submission of claims under Section 15 of the Code. Claims
have to be submitted with the Interim Resolution Professional (IRP).
102. As mentioned above, the purpose of collating the claims by the
Interim Resolution Professional (IRP) is to prepare an Information
Memorandum under Regulation 36 of the Insolvency and Bankruptcy
Board of India (Insolvency Professionals) Regulations, 2016. The Hon’ble
Supreme Court in Paragraph 67 in Ghanashyam Mishra and Sons
Private Limited through its Authorized Signatory (cited supra) has
explained the position as follows:-
“67. Perusal of Section 29 of the I&B Code read with
Regulation 36 of the Regulations would reveal that it
requires RP to prepare an information memorandum
containing various details of the corporate debtor so
that the resolution applicant submitting a plan is aware
of the assets and liabilities of the corporate debtor,
including the details about the creditors and the
amounts claimed by them. It is also required to contain
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W.P.(MD) No.8260 of 2025relation to the debts of the corporate debtor by other
persons. The details with regard to all material
litigation and an ongoing investigation or proceeding
initiated by the Government and statutory authorities
are also required to be contained in the information
memorandum. So also the 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.”
103. The purpose of inviting claims are to enable a prospective
resolution applicant to file a resolution application for reviving
corporate/operational debtor under Corporate Insolvency Resolution
Process (CIRP). However, where there is no scope for reviving a
Corporate/Operational Debtor, and the Company by Committee of
Creditors (CoC) resolves to liquidate the Corporate Debtor or where the
Resolution Application is rejected, the Company has to be liquidated
under the new Rules framed thereunder.
104. Therefore, the question to be decided is whether the claims
have to be invited afresh for distributing the proceeds from the sale of the
assets of the Corporate/Operational Debtor during liquidation where it is
resolved to liquidate such Corporate/Operational Debtor or whether the
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claim filed earlier for preparation of Information Memorandum under
Section 29 of the Code to enable a prospective Resolution Applicant to
file Resolution Plan is sufficient and has to be considered as the last
chance to file such claims, even where it is resolved to liquidate the
Corporate/Operational Debtor.
105. That apart, the claims that are filed for the purpose of
preparation of Information Memorandum is different from the claim that
has to be entertained after liquidation is ordered. This is because the
Company may have continued to carry on business even after the
Moratorium is declared under Section 14 of the Code and in case any debt
is incurred thereafter, such debt will have to be paid from and out of the
assets of the corporate/operational debtor in terms of waterfall mechanism
under Section 53 of the Code.
106. Further, the Information Memorandum prepared by the
Resolution Professional was neither used for preparing the Resolution
Plan nor any such Resolution Plan was sanctioned by the NCLT.
107. It will be useful to refer to the following decisions of the
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Hon’ble Supreme Court. The Hon’ble Supreme Court in Embassy
Property Developments Pvt Ltd. Vs State of Karnataka, (2020) 13 SCC
308 held as under:-
“It will be a different matter, if proceedings under
statutes like Income Tax Act had attained finality,
fastening a liability upon the corporate debtor, since, in
such cases, the dues payable to the Government would
come within the meaning of the expression ‘operational
debt’ under Section 5(21), making the Government an
‘operational creditor’ in terms of section 5(20). The
moment the dues to the Government are crystaliised
and what remains is only payment, the claim of the
Government will have to be adjudicated and paid only
in a manner prescribed in the resolution plan as
approved by the Adjudicating Authority, namely, the
National Company Law Tribunal”.
108. The Hon’ble Supreme Court in Ghanashyam Mishra and
Sons Private Limited through the authorised Signatory vs. Edelweiss
Asset Reconstruction Company Limited through the Director and
others, (2021) 9 SCC 657 dealt with the following issues:-
“The issues before the Supreme Court were:
(i) As to whether any creditor including the Central
Government, State Government or any local authority
is bound by the resolution plan once it is approved by
an adjudicating authority under Section 31(1) of the
Insolvency and Bankruptcy Code, 2016 (“IBC”)?
(ii) As to whether the amendment to Section 31 by
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(iii) As to whether after approval of resolution plan
by the adjudicating authority a creditor including the
Central Government, the State Government or any local
authority is entitled to initiate any proceedings for
recovery of any of the dues from the corporate debtor,
which are not a part of the resolution plan approved by
the adjudicating authority?
109. The Hon’ble Supreme Court in Ghanashyam Mishra and
Sons Private Limited through the authorised Signatory (cited supra) has
held as under:
“94. We have no hesitation to say that the words
“other stakeholders” would squarely cover the Central
Government, any State Government or any local
authorities. The legislature noticing that on account of
obvious omission certain tax authorities were not
abiding by the mandate of the I&B Code and continuing
with the proceedings, has brought out the 2019
Amendment so as to cure the said mischief. We
therefore hold that the 2019 Amendment is declaratory
and clarificatory in nature and therefore retrospective
in operation.
…..
97. “Creditor” therefore has been defined to
mean “any person to whom a debt is owed and includes
a financial creditor, an operational creditor, a secured
creditor, an unsecured creditor and a decree-holder”.
“Operational creditor” has been defined to mean a
person to whom an operational debt is owed and
includes any person to whom such debt has been legally
assigned or transferred. “Operational debt” has been
defined to mean a claim in respect of the provision of
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goods or services including employment or a debt in
respect of the payment of dues arising under any law
for the time being in force and payable to the Central
Government, any State Government or any local
authority.”
110. In Ghanashyam Mishra and Sons Private Limited through
the authorised Signatory (cited supra), the Court was concerned with
Corporate Insolvency Resolution Process (CIRP) and liquidation of assets
of Corporate Debtor. Whereas in this case, the Committee of Creditors
(CoC) in their IV meeting held on 25.08.2019 unanimously rejected the
Expression of Interest filed by MAK Auto Services and FERROSCO
Industries Private Limited. There was no application filed for Corporate
Insolvency Resolution Process (CIRP) in this case. The Committee of
Creditors (CoC) directly resolved to liquidate the 3rd Respondent/RLS
Alloys Pvt Ltd, the Corporate Debtor.
111. The Committee of Creditors (CoC) rejected both the
Expression of Interest and unanimously passed the resolution for
liquidation of the Company. If a resolution plan was filed and acted upon
and a plan was approved by the Committee of Creditors (CoC) and
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sanctioned by the NCLT, failure to file a claim petititon in response to
paper publication on 25.04.2019 could be construed fatal. However, it will
impact only the ordinary creditors and not secured creditors.
112. As far as the question of delay in the filing of claim, the Court
in RPS Infrastructure Ltd. Vs. Mukul Kumar and others, (2023) 10 SCC
718, the Hon’ble Supreme Court held that NCLAT’s impugned judgment
[Mukul Kumar v. RPS Infrastructure Ltd., 2021 SCC OnLine NCLAT
648] cannot be faulted to reopen the chapter at the behest of the appellant.
It further observed that the Court is not inclined to unleash the hydra-
headed monster of undecided claims on the resolution applicant.
113. The Hon’ble Supreme Court in RPS Infrastructure Ltd. Vs.
Mukul Kumar and others (cited supra) held as under:-
“21. The second question is whether the delay in the
filing of claim by the appellant ought to have been
condoned by Respondent 1. The IBC is a time bound
process. There are, of course, certain circumstances in
which the time can be increased. The question is
whether the present case would fall within those
parameters. The delay on the part of the appellant is of
287 days. The appellant is a commercial entity. That
they were litigating against the corporate debtor is an
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W.P.(MD) No.8260 of 2025have been vigilant enough in the aforesaid
circumstances to find out whether the corporate debtor
was undergoing CIRP. The appellant has been deficient
on this aspect. The result, of course, is that the
appellant to an extent has been left high and dry.
22. Section 15 IBC and Regulation 6 of the IBBI
Regulations mandate a public announcement of the
CIRP through newspapers. This would constitute
deemed knowledge on the appellant. In any case, their
plea of not being aware of newspaper pronouncements
is not one which should be available to a commercial
party.
23. The mere fact that the adjudicating authority
has yet not approved the plan does not imply that the
plan can go back and forth, thereby making the CIRP
an endless process. This would result in the reopening
of the whole issue, particularly as there may be other
similar persons who may jump onto the bandwagon. As
described above, in Essar Steel [Essar Steel (India) Ltd.
(CoC) v. Satish Kumar Gupta, (2020) 8 SCC 531 :
(2021) 2 SCC (Civ) 443] , the Court cautioned against
allowing claims after the resolution plan has been
accepted by the COC.
24. We have thus come to the conclusion that
Nclat’s impugned judgment [Mukul Kumar v. RPS
Infrastructure Ltd., 2021 SCC OnLine NCLAT 648]
cannot be faulted to reopen the chapter at the behest of
the appellant. We find it difficult to unleash the hydra-
headed monster of undecided claims on the resolution
applicant.”
114. The Hon’ble Supreme Court in State Tax Officer vs. Rainbow
Papers Limited, (2023) 9 SCC 545 has also held as under:
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53. 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 necessarilyhave to be
liquidated and its assets sold and distributedin the
manner stipulated in Section 53 IBC.
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 Authority or for that
matter, any other dues.
….
56. Section 48 of the GVAT Act is not contrary
to or inconsistent with Section 53 or any other
provisions of 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.
57. As observed above, the State is a secured
creditor under GVAT Act. Section 3(30) IBC defines
“secured creditor” to mean creditor in favour of
whom security interest is credited. Such security
interest could be created by operation of law. The
definition of “secured creditors” in IBC does not
exclude any Government or Governmental
Authority.”
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115. The Hon’ble Supreme Court in Paschimanchal Vidyut Vitran
Nigam Limited v. Raman Ispat Private Limited and others, (2023) 10
SCC 60 however doubted the view of the Court in State Tax Officer Vs.
Rainbow Papers Limited (cited supra). There, it observed as under:-
“53. Rainbow Papers did not notice the waterfall
mechanism” under Section 53-– the provision had not
been adverted to or extracted in the judgement.
Furthermore, Rainbow Papers was in the context of
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 or was missed
altogether. In any event, the judgement has not taken
note of the provisions of IBC which treat the dues
payable to the secured creditors at a higher footing
than dues payable to the Central or State Government.
—-
58. In view of the above discussion, it is held that
the reliance on Rainbow Papers is of no avail to the
appellant. In this Court’s view, that judgement has to be
confined to the facts of that case alone.”_______________
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116. The Hon’ble Supreme Court recently in Sanjay Kumar
Agarwal vs. State Tax Officer (1) and another, (2024) 2 SCC 362
considered its decision in Rainbow Papers case (cited supra) and in
Paschimanchal Vidyut Vitran case (cited supra) and observed as under:-
“24. Apart from the well-settled legal position
that a coordinate Bench cannot comment upon the
judgment rendered by another coordinate Bench of
equal strength and that subsequent decision or a
judgment of a coordinate Bench or larger Bench by
itself cannot be regarded as a ground for review, the
submissions made by the learned counsel for the review
petitioners that the Court in the impugned decision had
failed to consider the waterfall mechanism as contained
in Section 53 and failed to consider other provisions of
IBC, are factually incorrect. As evident from the bare
reading of the impugned judgment [State Tax Officer
v. Rainbow Papers Ltd., (2023) 9 SCC 545] , the Court
had considered not only the waterfall mechanism
under Section 53 IBC but also the other provisions of
IBC for deciding the priority for the purpose of
distributing the proceeds from the sale as liquidation
assets.
—-
27. In view of the above stated position, we are of
the opinion that the well-considered judgment [State
Tax Officer v. Rainbow Papers Ltd., (2023) 9 SCC
545] sought to be reviewed does not fall within the
scope and ambit of review. The learned counsel for the
review petitioners have failed to make out any mistake
or error apparent on the face of record in the impugned
judgment [State Tax Officer v. Rainbow Papers Ltd.,
(2023) 9 SCC 545] , and have failed to bring the case
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W.P.(MD) No.8260 of 2025various decisions for reviewing the impugned judgment.
Since we are not inclined to entertain these review
petitions, we do not propose to deal with the other
submissions made by the learned counsel for the parties
on merits.”
Therefore, it has to be held that the view of the Hon’ble Supreme Court in
Rainbow Papers case (cited supra) has been affirmed by the Hon’ble
Supreme Court in Sanjay Kumar Agarwal vs. State Tax Officer (1) and
another (cited supra) and lays the correct position of law to be followed.
CONCLUSION:-
117. I am of the view that even if the 1st Respondent had failed to
file a claim statement within the time stipulated in the passed under
Section 13 of the Code on 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. The
Insolvency Resolution Professional (IRP) ought to have taken note of the
Impugned Attachment Order dated 03.02.2016 passed against the 3rd
Respondent/RLS Alloys Pvt Ltd, the Corporate Debtor.
118. That apart, a secured creditor like the 1st Respondent stands on
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a different footing and is a class apart from other creditors. As per Section
52(1) of the Code, a secured creditor in the liquidation proceedings at best
may relinquish its security interest to the liquidation estate and receive
proceeds from the sale of assets from the liquidator in the manner
specified in Section 53 of the Code or realize its security interest in the
manner specified in Section 52 of the Code.
119. Under Section 52(1) of the Code, a Secured Creditor in
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.
(b) realise its security interest in the manner
specified in this section.
120. If a secured creditor decides to realise its security, the amount
of insolvency resolution process costs payable by the secured creditor
shall be deducted from the realised proceeds. Where there is a surplus
realised from the enforcement of a security interest, the secured creditor
has to account for the same to the liquidator.
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121. Similarly, if the proceeds from the realisation of the secured
assets are not sufficient to repay the debts owed to the secured creditor,
the secured creditor may claim in accordance with the priority of
payments under Section 53 for such upaid portion. Thus, the claim of a
secured creditor is never subservical.
122. As per Section 52(2) of the Code, if a secured creditor intends
to realize the security interest under clause (b) of sub-section (1), he/she
has to inform the liquidator of such security interest and identify the asset
subject to such security interest to be realized. Thus, an independent right
is vested with the secured creditor in respect of security interest.
123. Section 52(1) of the Code is reproduced below:-
52. 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.
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(2) Where the secured creditor realises security
interest under clause (b) of subsection (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 the security
interest being realised and to the secured creditor and
apply the proceeds to recover the debts due to it.
(5) If in the course of realising a secured asset,
any secured creditor faces resistance from the
corporate debtor or any person connected therewith in
taking possession of, selling or otherwise disposing off
the security, the secured creditor may make an
application to the Adjudicating Authority to facilitate
the secured creditor to realise such security interest in
accordance with law for the time being in force.
(6) The Adjudicating Authority, on the receipt of
an application from a secured creditor under sub-
section (5) 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.
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(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.
124. As per Section 52(4) of the Code, a secured creditor may
enforce, realise, settle, compromise or deal with the secured assets in
accordance with such law as applicable to the security interest being
realised and to the secured creditor and apply the proceeds to recover the
debts due to it.
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125. In the present case, the 1st Respondent has merely asked the
liquidator to settle the tax dues. The 1st Respondent had not relinquished
the security interest. Instead, has opted the mechanism as prescribed under
Section 52(4) of the Code.
126. The IRP/RP liquidator ought to have informed the 1st
Respondent to either to opt under Section 52(1)(a) or Section 52(1)(b) of
the Code. However, liquidator namely Mr.S.R.Shiraam Shekher, decided
to auction the property and is said to have distributed the amounts
contrary to the scheme of the Code.
127. In fact, rights are vested with the secured creditor to seek
assistance of Adjudicating Authority namely the National Company Law
Tribunal (NCLT) to facilitate such secured creditors to realize the security
interest in accordance with law by inviting an order under sub-section 6 to
Section 52 of the Code.
128. Section 52(7) of the Code, further states that where the
enforcement of the security interest under sub-section (4) yields an
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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.
129. Thus, even if no Claim Statement was filed, a secured creditor
stands on a separate foot and can enforce the right independently. Only if
the secured creditor realizes its security interest under Section 52(1)(a) of
the Code, it will stand in queue under the waterfall mechanism under
Section 53 of Code.
130. Therefore, there has been a grave error committed by the
liquidator in rejecting the claim of the 1st Respondent. Further, the request
for bringing the security interest of the 1st Respondent to sale was made as
early as 10.08.2020 whereas, the asset was brought to sale only on
24.10.2024 pursuant to E-auction Notice dated 18.11.2024 which is long
after the request of the 1st Respondent on 10.08.2020 wherein it has been
clearly stated that the 3rd Respondent corporate/operational debtor
M/s.RLS Alloys Private Limited was in arrears of tax for the Assessment
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W.P.(MD) No.8260 of 2025
Years 2012-2013 to 2014-2015.
131. The claim of a secured creditor under Section 52 and Section
53 of the Code makes it clear that the right of the secured creditor is
sacrosanct and cannot be diluted as compared to different categories of
creditors.
132. The crown debt is on the top of pyramid after the interest of
the workers are taken care, where there is no secured asset. If the secured
creditor chooses to work out the remedy independently, only the excess
amount recovered by such secured creditor is to be paid back to the
liquidator for making it available for distribution to the other category of
credit.
133. In fact a somewhat similar provision was also available under
Section 12(2) of the Presidency-Towns Insolvency Act, 1909 which now
stands repealed after the Code came into force on 28th May, 2016.
However, it operated differently. As per Section 12(2) of the Presidency-
Towns Insolvency Act, 1909, if the petitioning creditor was a secured
creditor, in his claim petition, he has to state that he was willing to
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relinquish his security for the benefit of the creditors in the event of the
debtor being adjudged insolvent or give an estimate of the value of the
security.
134. In the latter case, he may be admitted as a petitioning creditor
to the extent of the balance of the debt due to him after deducting the
value so estimated in the same way as if he were an unsecured creditor.
Section 12(2) of the Presidency-Towns Insolvency Act, 1909 reads as
under:-
“12. Conditions on which creditor may petition.
(1) A creditor shall not be entitled to present an
insolvency petition against a debtor unless-
(a) the debt owing by the debtor to the creditor, or, if
two or more creditors join in the petition, the
aggregate amount of debts owing to such
creditors, amounts to five hundred rupees, and
(b) the debt is a liquidated sum payable either
immediately or at some certain future time, and
(c) the act of insolvency on which the petition is
grounded has occurred within three months
before the presentation of the petition.
Provided that where the said period of three
months referred to in clause (c) expires on a day when
the Court is closed, the insolvency petition may be
presented on the day on which the Court
reopens. [Added by Insolvency Law (Amendment) Act,
1950 (3 of 1950), section 2.].
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(2) If the petitioning creditor is a secured
creditor, he shall in his petition either state that he is
willing to relinquish his security for the benefit of the
creditors in the event of the debtor being adjudged
insolvent or give an estimate of the value of the
security. In the latter case he may be admitted as a
petitioning creditor to the extent of the balance of the
debt due to him after deducting the value so estimated
in the same way as if he were an unsecured creditor.”
135. In my view, the IRP/RP/Liquidator could not have ignored the
rights of the 1st Respondent, as the 1st Respondent is a secured creditor
within the meaning of Section 3(30) of the Code.
136. Since the 1st Respondent is a secured creditor, registration of
Sale Certificate dated 23.01.2025 pursuant to auction held on 24.12.2024
cannot be countenanced. The sale made has seriously compromised the
rights of the 1st Respondent as a “secured creditor”.
137. Since the Petitioner has invested a sum of Rs.3,05,55,143/- for
purchasing the security interest of the 1st Respondent, the only remedy
available/left for the Petitioner is to recover the amount from the person to
whom amounts were paid by the liquidator through liquidation process.
138. The liquidator has to assist the Petitioner for recovering the
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amount(s) that may have been paid to the creditors who may have filed
claim statements and would have received the amount from the liquidator.
The amount recovered may be paid to the 1st Respondent. Once the
amount is fully paid to the 1st Respondent, the impugned attachment will
stand vacated /lifted.
139. Therefore, this Writ Petition is liable to be dismissed for the present with
the above observation. It is accordingly dismissed. No costs. Consequently, the
connected Miscellaneous Petition is closed.
14.08.2025
JEN
Index : Yes
Internet : Yes
Neutral Citation : Yes
Speaking Order
To
1.The Assistant Commissioner
Srirangam (GST Circle), Moolathoppu Melur Road,
Srirangam, Tiruchirappalli – 620 006.
2.The Sub Registrar,
Keezhsathanur,
Palani Road, K.K.Nagar,
Tiruchirappalli, Tamil Nadu – 620 001.
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W.P.(MD) No.8260 of 2025
C.SARAVANAN, J.
JEN
Pre-Delivery order made
in
W.P.(MD) No.8260 of 2025
and
W.M.P.(MD) No.6197 of 2025
14.08.2025
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