1. The instant Application is filed by Mr. Sundaresh Bhat being Liquidator of the Corporate Debtor ABG Shipyard Limited (‘Applicant’) under Section 33 (6) read with Section 60(5) and Section 238 of the Insolvency and Bankruptcy Code, 2016 (‘Code’) seeking following directions against State Tax Department (‘Respondent’):

"i.Consider and allow IA No. 371 of 2021 filed under Section 33(6) read with Section 60 (5) (c) and 238 of the Code;

ii.Direct Respondent to release the attachments/ encumbrance on all the said properties so as to enable the Applicant to continue with the sale process and sell the property of the Corporate Debtor in terms of the provisions of the Code;

iii.Consider that no suit, prosecution or other legal proceeding shall lie against the Applicant being Liquidator of the Corporate Debtor for anything done or intended to be done in good faith, under Section 233 of the Code;

iv.Restrain the Respondent from taking any further coercive action against the Corporate Debtor towards recovery of its outstanding demand.

v.Pass such other order(s) and /or direction(s) which this Hon’ble Tribunal deems fit."

2. The brief backdrop of the case is that an insolvency application was filed by the financial creditor ICICI Bank Ltd. under Section 7 of the Code for initiation of Corporate Insolvency Resolution Process (‘CIRP’) against Corporate Debtor which was admitted on 01.08.2017 and Mr. Sundaresh Bhat was appointed as Interim Resolution Professional (IRP) and later confirmed as Resolution Professional. Thereafter since no feasible resolution plan was received, the CoC in its 21st meeting resolved to liquidate the Corporate Debtor. Accordingly, an application for liquidation was filed which was allowed vide order dated 25.04.2019 and Applicant herein was appointed as Liquidator.

3. As per the Applicant Liquidator, the Respondent State Tax Department had filed a claim of Rs. 30,48,33,835/- in Form -B on 11.10.2017 with Resolution Professional. Copy of Form-B is annexed. Thereafter without the knowledge or intimation to the Applicant, the Respondent on 20.10.2018 i.e. 15 months after the commencement of CIRP, created charge for the debt of Rs. 32,51,03,259/- with interest @ 18% p.a. on the land of the Corporate Debtor admeasuring 68000 sq. meters situated in Surat, Gujarat in the revenue records, through entry no. 5294 with condition to not to transfer, mortgage, sell or alienate the said property without the permission of the Respondents herein. The said entry no. 5294 in the revenue record was certified by Circle Officer, Gujarat Revenue Department on 18.12.2018. After the initiation of Liquidation proceedings of the Corporate Debtor, the Respondent had filed a claim of Rs. 55,55,78,650/- in Form-C on 27.05.2019. Thereafter on 2.07.2020 the Respondent modified the earlier charge and revised for an amount to Rs. 55,55,78,650/- on the same interest rate and condition. Copy of 7/12 extract reflecting said entries in the revenue records were annexed.

4. It is stated that the Applicant had requested the Respondent vide letter dated 04.03.2021 to lift the charge on assets of the Corporate Debtor so that it can perform its duties under the Code to sell the assets of the Corporate Debtor. The said letter was neither replied nor the charge was lifted in the land revenue records. Thus, the Present Application is filed.

5. During the hearing of the matter on 25.03.2022, Learned Counsel Ms. Garima Malhotra appeared for Respondent and submitted that they have the filed the reply which shall be considered. However, during the final hearing none appeared for the Respondent. On perusal of the records, it is found that the reply was neither filed through e-filing nor physical mode.

6. The Applicant Liquidator has filed written submission and states that it is settled law that all statutory dues or crown debts falls within the definition of ‘operational debt’ defined under Section 5(21) of the Code and in terms of Section 53 (1) (e) such dues are preceded by the dues of the workmen, employees and secured creditors. The Applicant further averts that Section 238 of the Code supersedes any other law contrary or inconsistent with the provisions of the Code and hence the act of the Respondent under Section 48 of the Gujarat Value Added Tax, 2003 is inconsistent with the provisions of the Code. The Applicant relied on the order passed by Hon’ble Apex Court in Pr. Commissioner of Income Tax v/s Monnet Ispat and Energy Limited (SLP No. 6483/2018) dated 10.08.2018 which is reproduced below:

“Given Section 238 of the Insolvency and Bankruptcy Code, 2016, it is obvious that the Code will override anything inconsistent contained in any other enactment, including the Income-Tax Act.

We may also refer in this connection to Dena Bank vs. Bhikhabhai Prabhudas Parekh and Co. & Ors. (2000) 5 SCC 694 [LQ/SC/2000/783] and its progeny, making it clear that income-tax dues, being in the nature of Crown debts, do not take precedence even over secured creditors, who are private persons.

We are of the view that the High Court of Delhi, is, therefore, correct in law.

Accordingly, the Special Leave Petitions are dismissed. Pending applications, if any, stand disposed of.”

The Applicant has also relied following part of the order passed by Hon’ble Apex Court in Leo Edible & Fats Ltd. vs. The Tax Recovery Officer (Central), Income Tax Department, Hyderabad and others (WP No. 8560/2018), dated 26.07.2018:

“It is therefore clear that tax dues, being an input to the Consolidated Fund of India and of the States, clearly come within the ambit of Section 53(1)(e) of the Code. If the Legislature, in its wisdom, assigned the fifth position in the order of priority to such dues, it is not for this Court to delve into or belittle the rationale underlying the same.

……….

On the above analysis, this Court holds that the first respondent cannot claim any priority merely because of the fact that the order of attachment dated 27.10.2016 issued by him was long prior to the initiation of liquidation proceedings under the Code against VNR Infrastructures Limited, Hyderabad. It may be noted that Section 36(3)(b) of the Code indicates in no uncertain terms that the liquidation estate assets may or may not be in possession of the corporate debtor, including but not limited to encumbered assets. Therefore, even if the order of attachment constitutes an encumbrance on the property, it still does not have the effect of taking it out of the purview of Section 36(3)(b) of the Code. The said order of attachment therefore cannot be taken to be a bar for completion of the sale effected by the fifth respondent under the provisions of the Code. The first respondent necessarily has to submit the claim of the Income-tax Department to the fifth respondent for consideration as and when the distribution of the assets, in terms of Section 53(1) of the Code, is taken up.”

7. We have considered the submissions made and perused the documents filed and orders relied upon. The copy of Form-B and Form-C annexed by the Applicant, establish that the Respondent State Tax Department, Government of Gujarat had filed its claim with the Applicant RP/Liquidator. Also, the annexed translated copy of 7/12 order obtained from the Sub-Registrar Office (SRO) Surat-1 reflects that after the initiation of CIRP of the Corporate Debtor, a charge is created on land having various account with respect to corresponding survey No. 59/4(291), 59/5/2(291), 60/1/P2(949), 60/1/P4(291), 60/1/P1+2+3+4(538), 60/1/PA10(597), 60/1/PA/11(598), 60/1/pA12(538), 60/1/pA13(600), 60/1/PA/14(601), 60/1/PA/16(603), 60/1/PA/17(553), 60/1/PA/18(604), 60/1/PA/15(602), 60/1/PA/6(532), 60/1/PA/7(595), 60/1/PA/8(596), 60/1/PA/9(698), 60/1/PA/5(690), 60/2(702) held in the name of Corporate Debtor A.B.G. Shipyard Ltd. in the land revenue records. The said charge is registered on the basis of the order dated 12.10.2018 of the State Tax office, Unit-8, Surat. It is also seen that an amount of charge was modified for higher amount vide order No. STO (2)/unit- 8(64)/Surat/A.B.G. Shipyard Ltd. 2020-21/ Outward No. 1199/1200 dated 02.07.2020.

8. It is an undisputed fact that the Respondent is not a secured financial creditor. The facts and circumstances of the instant matter shows that the Respondent, having the knowledge of ongoing CIRP of the Corporate Debtor, created charge over the assets of the Corporate Debtor against its operational claim. Such act of the Respondent prima facie shows the intention to recover the due amount pari pasu with financial creditor which is not in consonance with provisions of the Code. Under Section 14 of the Code there is an express bar against any action against Corporate Debtor. Section 14 of the Code provides as under:

“Section 14. Moratorium. –

(1) Subject to provisions of sub-sections (2) and (3), on the insolvency commencement date, the Adjudicating Authority shall by order declare moratorium for prohibiting all of the following, namely: -

(a) the institution of suits or continuation of pending suits or proceedings against the corporate debtor including execution of any judgement, decree or order in any court of law, tribunal, arbitration panel or other authority;

(b)transferring, encumbering, alienating or disposing off by the corporate debtor any of its assets or any legal right or beneficial interest therein;

(c) any action to foreclose, recover or enforce any security interest created by the corporate debtor in respect of its property including any action under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (54 of 2002);

(d)the recovery of any property by an owner or lessor where such property is occupied by or in the possession of the corporate debtor.

[Explanation.-For the purposes of this sub-section, it is hereby clarified that notwithstanding anything contained in any other law for the time being in force, a licence, permit, registration, quota, concession, clearance or a similar grant or right given by the Central Government, State Government, local authority, sectoral regulator or any other authority constituted under any other law for the time being in force, shall not be suspended or terminated on the grounds of insolvency, subject to the condition that there is no default in payment of current dues arising for the use or continuation of the license or a similar grant or right during moratorium period;]”

9. Further Section 238 of the Code provides as under:

"Section 238: Provisions of this Code to override other laws. – The provisions of this Code shall have effect, notwithstanding anything inconsistent therewith contained in any other law for the time being in force or any instrument having effect by virtue of any such law."

10. As per the submissions of the Applicant, the security in the form of charge has been created under the provisions of the Gujarat Value Added Tax, 2003. Section 238 unambiguously provides that the provisions of the Code supersede all other enactment, which imply that any action taken under any other enactment which is inconsistent with Code shall have no effect and the provisions of the Code shall prevail. In view of Section 238 and observations of Hon’ble Supreme Court in cases cited by the Applicant supra, we are of the considered opinion that act of creation of charge by the Respondent is inconsistent with the provisions of the Code.

11. As a consequence to above discussion, application is allowed in terms of prayer (ii) and further the Respondent is directed to release the charge/ encumbrance registered on property of the Corporate Debtor created vide order dated 12.10.2018 and 02.07.2020 forthwith, so as to enable the Applicant to discharge its functions in the capacity of the Liquidator of the Corporate Debtor as per the provisions of the Code and regulations made thereunder.

12. Accordingly, with above directions the Application is disposed of. Copy of the order be served to the parties concerned by Registry.