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Supreme Court’s Landmark Decision: Equal Treatment to Government’s Secured Claims in IBC Cases


Recently in the case of Sanjay Kumar Agarwal v. State Tax Officer & Anr.[i], the Supreme Court of India (‘SC’) dismissed a batch of review petitions filed against the case of Rainbow Papers Limited[ii], thereby holding that the State, as a secured creditor under the Gujarat Value Added Tax Act, 2003 (‘GVAT Act’), is entitled to rank equally with other specified debts under s. 53(1)(b)(ii) of the Insolvency and Bankruptcy Code, 2016 (‘IBC’).

Brief Facts

  1. In the case of Rainbow Papers Limited (supra), the Corporate Debtor (‘CD’) faced insolvency proceedings under the GVAT Act, in response the State Tax Officer (‘STO’) filed claims to recover unpaid taxes. However, the Resolution Professional (‘RP’) waived off the amount claimed arguing that the STO should be categorized as an operational creditor under the IBC and therefore, would not be entitled to a primary claim on the CD’s assets.

  2. The National Company Law Tribunal (‘NCLT’) supported the CD and validated the RP's arguments. Further, the STO appealed wherein the National Company Law Appellate Tribunal (‘NCLAT’), upheld NCLT’s decision and observed that the STO would not be eligible to claim primary charge on the CD’s property and held that s. 53 of the IBC overrides s. 48 of the GVAT Act.

  3. Furthermore, on appeal, the Supreme Court set aside the order passed by the NCLAT and observed that the NCLAT erred in rejecting the appeal of the appellant.


  1. The SC in this case dismissed the 5 review petitions filed against the common judgment dated 06.09.2022 passed by the co-ordinate bench of the SC and held that the Adjudicating Authority and NCLAT had erred in rejecting the appeals emphasising that delay in filing a claim cannot be the sole ground for rejection. Accordingly, the impugned orders and the resolution plan approved by the Committee of Creditors (‘CoC’) were all set-aside.

  2. The SC observed that its co-ordinate bench had duly considered the waterfall mechanism provided under s. 53 of the IBC for deciding the priority of claims for the purpose of distributing the proceeds from the sale of liquidation assets in a hierarchy or by giving priority to the claims of various classes of creditors.

  3. The SC further clarified that s. 48 of the GVAT Act is not contrary to or inconsistent with s. 53 of the IBC, and thus the State will come within the ambit of secured creditors under the GVAT Act and rank equally to recover debts. Furthermore, the SC stated that s. 3(30) of the IBC provides for secured creditors, in whose favour the security interest is credited, which does not exclude any government or government authority.

  4. The SC also examined the power and scope of review whereby it was held that the scope of the review was not limited to parties to the judgment and that even a third party claiming to be an ‘aggrieved person’ may file a review petition. However, the SC emphasized that the same was not an appellate power and was confined to specified grounds, thereby reaffirming that a review petition has a limited purpose and cannot be an ‘appeal in disguise.’


The SC's ruling in this case sets a significant precedent, emphasizing the importance of giving priority to statutory dues owed to governments and governmental authorities in insolvency cases.

The judgment stressed the harmonization of the IBC with the GVAT Act, highlighting that the debts owed to a secured creditor, including the State under the GVAT Act, must be treated equally with other specified debts. The definition of a secured creditor in the IBC, as clarified, encompasses government or governmental authorities, ensuring equal treatment of their dues.

While reinforcing the principle that a co-ordinate bench cannot comment or question the discretion or judgment of another co-ordinate bench of equal strength, this judgment also underscores the limited scope of review and the need for a glaring error or oversight in the judgment for review to be entertained.

End Notes

[i] 2023 SCC OnLine SC 1406

[ii] 2022 SCC OnLine SC 1162

Authored by Purvi Garg, Advocate at Metalegal Advocates. The views expressed are personal and do not constitute legal opinion.


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