Gujarat High Court
State Of Gujarat vs Sanjay Kumar Agarwal on 26 December, 2019
Author: Biren Vaishnav
Bench: Biren Vaishnav
C/SCA/23256/2019 ORDER
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/SPECIAL CIVIL APPLICATION NO. 23256 of 2019
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STATE OF GUJARAT
Versus
SANJAY KUMAR AGARWAL
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Appearance:
MR. KAMAL TRIVEDI, ADVOCATE GENERAL WITH MS. MANISHA
LAVKUMAR SHAH, GOVERNMENT PLEADER WITH MS. SHRUTI
PATHAK, AGP WITH MR. MAULIK NANAVATI (1) for the Petitioner(s) No. 1
for the Respondent(s) No. 1,2
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CORAM: HONOURABLE MR.JUSTICE BIREN VAISHNAV
Date : 26/12/2019
ORAL ORDER
1 Draft amendment granted. In this petition under Article 226 of the Constitution of India, the State has challenged the order dated 18.11.2019 passed by the National Company Law Tribunal, Mumbai Bench, in Misc. Application No. 2357 of 2019 in Company Petition No. 1514/I&BC/NCLT/MB/MAH.2017. By the operative part of the order so passed, the Tribunal has directed concerned authorities to lift the attachment of the properties in question so that they can be put to sale by the liquidator and thereupon the sale proceedings be distributed under Section 53 of the I&B Code in order of priority prescribed therein. Page 1 of 7 Downloaded on : Thu Dec 26 23:12:49 IST 2019 C/SCA/23256/2019 ORDER 2 Mr.Kamal Trivedi, learned Advocate General, while assailing this order of the Tribunal made the following submissions:
(a) Inviting my attention to a petition filed by the State against the Allahabad Bank, in which, the State had contended that it had first charge over all the properties and assets in view of Section 48 of the Gujarat VAT Act, 2003, and which petition is still pending, the Court had issued certain directions by way of an interim arrangement. Reliance is placed on Clauses G, H, J & K of the condition which reads as under:
"(G) Thereafter, auction sale should be conducted by only way of public auction and it shall be conducted by both banks in presence of authorized public nominated officer of the petitioner.
(H) The sale proceeds shall be immediately deposited with the Registry of this Court.
(J) If by the time the auction is conducted and the sale amount is deposited, petition is not finally heard and decided it will be open to the parties to request for final hearing of the matter.
(K) It is, however clarified that the sale shall not be confirmed and sale certificate shall not be issued by the respondent Nos. 1 and 2 banks without informing the Court and without seeking permission from the Court by way of appropriate application."
(b) In an application under Section 7 of I.B Code, the Company Law Tribunal on 19.07.2018, passed an order clause 5 of which reads as under:
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"5 The request of the resolution professional is that the attachment made by the several authorities as listed in the application and details of the property, this Bench may pass an order for lifting attachment. However, the admitted position is that the attachment by the other department is prior in date from the commencement of Moratorium. Since the attachment is not after the declaration of Moratorium, therefore, at this stage interference is not judicially permissible......."
In other words, according to the learned Advocate General, the Tribunal was conscious of the fact that the attachment of the State was prior to coming into force of the I&BC and therefore, interference in such attachment was impermissible.
(c) By an order dated 31.12.2018, the N.C.L.T ordered liquidation of the Company. It also directed that the liquidator shall co-ordinate with all authorities and the respected government authorities shall provide complete information to facilitate liquidation process. The order made it clear that the attachment of a property is a first step of law to secure the property to avoid any apprehension of sale or dispose of by any means, however, the final remedy is the liquidation of those properties by due process of law.
(d) The State preferred Misc. Application No. 441 of 2019 in Company Petition No. 1514 of 2017 praying before the Page 3 of 7 Downloaded on : Thu Dec 26 23:12:49 IST 2019 C/SCA/23256/2019 ORDER Tribunal that the Tribunal be pleased to issue appropriate directions to the liquidator to provide for payment of dues and rights to the applicant - State of Gujarat as given to the secured creditors under the provisions of the I&BC . From the perusal of the orders dated 24.09.2019 and 25.10.2019 it appears that the application was adjourned to 18.11.2019 and is still pending before the Tribunal.
Pending consideration of that application, the liquidator filed Misc. Application 2357 of 2019 praying that the Tribunal be pleased to pass order of lifting attachment of State Tax Department on encumbered assets of the corporate debtor to which the State filed a reply praying that only after adjudicating miscellaneous application filed by the State Tax Department, the order be passed. However, by the impugned order, the Tribunal has ordered lifting of the attachment by which the State is aggrieved.
3 Learned Advocate General Shri Kamal Trivedi for the State would contend that the Tribunal has erred in relying on a decision of the Andhra Pradesh High Court in the case of Leo Edibles & Fats Limited vs. The Tax Recovery Officer, Income Tax Department. Before the Andhra Pradesh High Court, what was under consideration was effect of attachment Page 4 of 7 Downloaded on : Thu Dec 26 23:12:49 IST 2019 C/SCA/23256/2019 ORDER under Section 178(6) of the Income Tax Act. The section which was under consideration was the amended section 178(6) by which sub-section 6 of section 178 provided that the provisions of this section shall have effect notwithstanding anything to the contrary contained in any other law for the time being in force except the provisions of the Insolvency & Bankruptcy Code, 2016. According to the learned Advocate General, subsection (6) of section 178, as it stood prior to its amendment read to the effect that the provisions of section 178 shall have effect notwithstanding anything to the contrary contained in any other law for the time being in force. 4 A fine distinction is drawn to this provision as compared to Section 48 of the Gujarat Value Added Tax Act, 2003, by which the section provided that notwithstanding anything to the contrary contained in any law for the time being in force, any amount payable by a dealer or any other person on account of tax, interest of penalty for which he is liable to pay to the Government shall be a first charge on property of such dealer. In this section, there is no exception as far as I&BC is concerned.
5 It appears that the Tribunal has got influenced by the Page 5 of 7 Downloaded on : Thu Dec 26 23:12:49 IST 2019 C/SCA/23256/2019 ORDER reference in the Andhra Pradesh judgment by holding as under:
"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."
6 Inviting my attention to the provisions of the I&BC, particularly Sections 3(4), 3(30) and 3(31), Mr.Kamal Trivedi, learned Advocate General, would contend that reading these three definitions conjointly would undisputedly indicate that the State has a charge over the property as a secured creditor in whose favour there was a security interest. Mr.Kamal Trivedi, then inviting my attention to the provisions of Section 52 read with section53 of the I&B Code would contend that in accordance with section 53(1)(b)(ii), the State would be a secured creditor under this provision and not one under Section 53(1)(e) of the Code. The judgment of the Andhra Pradesh High Court was in context of attachment simplicitor and the exception carved out in the application of the I&BC to the Income Tax Act which was not the case as far as section 48 of the Gujarat VAT Act was concerned which created charge over the property. The judgment was in light of the statutory scheme under the Income Tax Act where the Page 6 of 7 Downloaded on : Thu Dec 26 23:12:49 IST 2019 C/SCA/23256/2019 ORDER department did not enjoy the status of a secured creditor. In the present case, the State in light of Section 48 of the VAT Act read with sections 3(4), 3(30) and 3(31) and Section 52 and 53(1)(b)(ii) was a secured creditor and the judgment of the Andhra Pradesh High Court was clearly distinguishable. 7 In addition thereto, the challenge of the State vis-a-vis section 48 of the Act is pending consideration before this Court in Special Civil Application No. 2640 of 2013, wherein, the interim arrangement is in operation.
8 Considering these submissions on hand, issue Notice to the respondents returnable on 16.01.2020. In the meantime, pending the hearing and final disposal of the petition, the operation, implementation and execution of the impugned order dated 18.11.2019 passed in Misc. Application No. 2357 of 2019 in Company Petition (IB) No. 1514 (MB)/2017 is stayed. Direct service, today, is permitted.
(BIREN VAISHNAV, J) Bimal Page 7 of 7 Downloaded on : Thu Dec 26 23:12:49 IST 2019