The Supreme Court in State Tax Officer v. Rainbow Papers Ltd. has held that the Committee of Creditors cannot secure it’s own dues at the cost of statutory dues owed to any Governmental Authority. Any Resolution Plan that ignores the statutory demands payable to any State Government or a legal authority, is liable to be rejected.

The present matter dealt with an appeal deciding whether Section 53 of the IBC Act could override Section 48 of the Gujarat VAT Act, 2003. The NCLAT had held that the Government cannot claim first charge over the property of the Corporate Debtor.

The Apex Court held that the NCLAT had erred in observing that Section 53 of the IBC overrides Section 48 of the Gujarat Value Added Tax Act, 2003. The latter does contain a non-obstante clause but Section 48 is not actually contrary to or inconsistent with Section 53  or any other provisions of the IBC. It went on to hold that the State is a secured creditor under the GVAT Act. It went into Section 3(30) and (31) which defined a secured creditor and security interest respectively.