IBC Resolution Plan Can’t Ignore Government Dues: Supreme Court Dismisses batch of Review Petitions

The Supreme Court on Tuesday (October 31) dismissed a batch of review petitions filed against a 2022 judgment which held that the definition of a secured creditor under the Insolvency and Bankruptcy Code (IBC) 2016 included any government or governmental authority and that a resolution plan which ignored dues to the government was liable to be rejected.

A bench of the Supreme Court comprising Justice A.S.Bopanna and Justice Bela M.Trivedi held that “In that view of the matter, all the Review Petitions are dismissed”.

While delivering judgment on review petitions against Civil Appeal No. 1661 of 2020 and Civil Appeal No.2568 of 2020 the judges held that;

 “Section 48 of the GVAT Act is not contrary to or inconsistent with Section 53 or any other provisions of the IBC. Under Section 53(l)(b)(ii), the debts owed to a secured creditor, which would include the State under the GVAT Act.,  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.  As observed above, the State is a secured creditor under the GVAT Act. Section 3(30) of the IBC defines secured creditor to mean a creditor in favour of whom security interest is credited. Such security interest could be created by the operation of law. The definition of a secured creditor in the IBC does not exclude any Government or Governmental Authority. We are constrained to hold that the Appellate Authority  (NCLAT) and the Adjudicating Authority erred in law in rejecting the application/appeal of the appellant. As observed above, delay in filing a claim cannot be the sole ground for rejecting the claim”.