Curative Petition in landmark decision in State Tax Officer v. Rainbow Papers Ltd., whether Govt. dues should rank equally with Secured Creditors or be treated with Operational Creditors under Insolvency Code?

Know about the landmark decision of the Hon’ble Supreme Court in Rainbow Papers and subsequent events.

PDF & Print

Whether Govt. dues should rank equally with Secured Creditors or be treated with Operational Creditors under Insolvency Code?

Curative Petition in landmark decision in State Tax Officer v. Rainbow Papers Ltd.

The Hon’ble Supreme Court, the bench comprising of Hon’ble the Chief Justice, Hon’ble Mr. Justice B.R. Gavai and Hon’ble Mr. Justice Surya Kant, allows applications for permission to file a curative petition against the judgment in Sanjay Kumar Agarwal v. State Tax Officer (1) and Anr. (2023) ibclaw.in 140 SC and for listing the same in open Court.

In Sanjay Kumar Agarwal (supra), a division bench of the Hon’ble Supreme Court dismissed the review petition filed against the judgment in State Tax Officer v. Rainbow Papers Ltd. (2022) ibclaw.in 107 SC.  The Bench also listed 8 grounds for review of a judgment.

About the famous judgment in the case of State Tax Officer v. Rainbow Papers Ltd.?

In State Tax Officer v. Rainbow Papers Ltd. (2022) ibclaw.in 107 SC, a division bench comprising of Ms. Justice Indira Banerjee and Mr. Justice Ajjikuttira Somaiah Bopanna, decided the priority of statutory dues to the Government and/or other authorities under IBC. The Hon’ble Supreme Court held that:

  • Section 53 of the Insolvency and Bankruptcy Code, 2016 (IBC) begins with a non-obstante clause. Section 48 of the Gujarat Value Added Tax, 2003 (GVAT Act) is not contrary to or inconsistent with Section 53 or any other provisions of the IBC.
  • Under Section 53(1)(b)(ii) of the IBC, 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.
  • The State is a secured creditor under the GVAT Act. Section 3(30) of the IBC defines secured creditor to mean a creditor in favour of whom security interest is credited. Such security interest could be created by operation of law.
  • The definition of secured creditor in the IBC does not exclude any Government or Governmental Authority.

Subsequent Decision in Paschimanchal Vidyut Vitran Nigam Ltd.

After the decision in Rainbow Papers(supra), the Hon’ble Supreme Court, a division bench comprising of Mr. Justice Shripathi Ravindra Bhat and Mr. Justice Dipankar Datta, in Paschimanchal Vidyut Vitran Nigam Ltd. Vs. Raman Ispat Pvt. Ltd. & Ors. (2023) ibclaw.in 81 SC (in para 49), held that Rainbow Papers (supra) judgment did not notice the ‘waterfall mechanism’ under Section 53 – the provision had not been adverted to or extracted in the judgment. 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 (supra) or was missed altogether.

Further, the Hon’ble Court held that in any event, the judgment has not taken note of the provisions of the IBC which treat the dues payable to secured creditors at a higher footing than dues payable to Central or State Government.

Review and Curative petitions against Rainbow Papers

Thereafter, a review petition was filed against the decision in Rainbow Papers (supra) which was dismissed, as discussed in opening paragraph of this article.

Read here complete summary of the Rainbow Papers Judgment.

Related Posts:

Scroll to Top