State Tax Officer Through Its ... vs Ca Vinod T. Agrawal (Resolution ...

(Arising out of order dated 01.09.2025 passed by the National Company Law Tribunal, Ahmedabad Bench in I.A. No. 88 of 2025 in CP (IB) No. 314 of 2022)

In the matter of:

Bank of Baroda Through its Authorised Representative, Asset Management Branch, 1st Floor, Kamdhenu Complex, Panjarapole Char Rasta, Opposite Polytechnic, Ambawadi, Ahmedabad, Gujarat-380015 ...Appellant

Vs.

1. State Tax Officer Through its Authorised Representative, Mr. A.C. Shahmadar, R/O: Unit-96, Satyam Complex, Junagarh Road, Dhoraji, Gujarat - 360410

2. CA Vinod T. Agarwal Resolution Professional of Corporate Debtor, Sunrise Ginning Private Limited, 204, Wall Street-1, Near Gujarat College, Ellisbridge, Ahmedabad-380006, Gujarat.

3. Sunrise Ginning Private Limited Corporate Debtor, R/O: Survey No. 595/4, Opp. Balaji Paper Mills, Upleta Road, Dhoraji, Gujarat- 360410.

4. M/s Sumit Cotton Co. & Ors. Successful Resolution Applicant (SRA) of Corporate Debtor, Sunrise Ginning Private Limited R/0: Mavji Jina, Anand Park Society, Manavadar, Junagadh - 362630. ...Respondents Present: For Appellant: Mr. Ashish Verma, Mr. Nikhil Thakur, Ms. Kriti and Mr. Akhil Ranganathan, Advocates.

For Respondents: Ms. Ritu Guru and Mr. Hitesh P. Vachhani, Advocate for R-1. Mr. Karan Valecha and Mr. Aayush Rathore, Advocates for R-2. Mr. M. Davawal, Advocate for SRA.

WITH Company Appeal (AT) (Ins.) No. 1601 of 2025

(Arising out of order dated 01.09.2025 passed by the National Company Law Tribunal, Ahmedabad Bench in I.A. No. 88 of 2025 in CP (IB) No. 314 of 2022)

In the matter of:

State Tax Officer Through its Authorized Representative A.C. SHAHMADAR Office Address at: Unit-96, Satyam Complex, Junagadh Road, Dhoraji, Gujarat-360410. ...Appellant

Vs.

1. CA Vinod T. Agrawal (Resolution Professional of Sunrise Ginning Pvt. Limited) 204, Wall Street-1, Near Gujarat College, Ellisbridge, Ahmedabad-380006 Gujarat

2. Sunrise Ginning Private Limited (Corporate Debtor), R/O: Survey No. 595/4,

Page 2 of 32 Company Appeal (AT) (Ins.) No. 189 of 2026 with Company Appeal (AT) (Ins.) Nos. 1601 & 1703 of 2025 Opp. Balaji Paper Mills, Upleta Road, Dhoraji, Gujarat- 360410.

3. Bank of Baroda Having its Registered Office at: First Floor, Stressed Assets Management Branch, 1st floor, Kamdhenu Complex, Nr. Panjarapol, Ahmedabad,380015, Gujarat.

4. M/s Sumit Cotton Co. & Ors. (Successful Resolution Applicant) Mavji Jina, Anand Park Society, Manavadar, Junagadh - 362630. ...Respondents Present: For Appellant: Ms. Ritu Guru, Advocate for State Tax Officer.

For Respondents: Mr. Karan Valecha and Mr. Aayush Rathore, Advocates for R-1.

Mr. Akhil Ranganathan, Advocate for R-3.

Mr. M. Davawal, Advocate for SRA.

WITH Company Appeal (AT) (Ins.) No. 1703 of 2025

(Arising out of order dated 16.10.2025 passed by the National Company Law Tribunal, Ahmedabad Bench, Court-II in I.A. No. 36 of 2024 in CP (IB) No. 314 of 2022)

In the matter of:

State Tax Officer Through its Authorized Representative A.C. SHAHMADAR Office Address at: Unit-96, Satyam Complex, Junagadh Road, Dhoraji, Gujarat-360410. ...Appellant

Vs.

Page 3 of 32 Company Appeal (AT) (Ins.) No. 189 of 2026 with Company Appeal (AT) (Ins.) Nos. 1601 & 1703 of 2025 1. CA Vinod T. Agrawal (Resolution Professional of Sunrise Ginning Pvt. Limited) 204, Wall Street-1, Near Gujarat College, Ellisbridge, Ahmedabad-380006 Gujarat

2. Sunrise Ginning Private Limited (Corporate Debtor), Survey No. 595/4, Opp. Balaji Paper Mills, Upleta Road, Dhoraji, Gujarat- 360410.

3. Bank of Baroda Having its Registered Office at: First Floor, Stressed Assets Management Branch, 1st floor, Kamdhenu Complex, Nr. Panjarapol, Ahmedabad,380015, Gujarat.

4. M/s Sumit Cotton Co. & Ors. (Successful Resolution Applicant) Mavji Jina, Anand Park Society, Manavadar, Junagadh - 362630. ...Respondents Present: For Appellant: Ms. Ritu Guru, Advocate for State Tax Officer.

For Respondents: Mr. Karan Valecha and Mr. Aayush Rathore, Advocates for R-1.

Mr. Akhil Ranganathan, Advocate for R-3.

Mr. M. Davawal, Advocate for SRA.

J U D G M EN T

(18th September, 2026)

INDEVAR PANDEY, MEMBER (T)

The instant appeal, CA (AT) (Ins.) No. 189 of 2026, has been preferred

by Bank of Baroda, a secured financial creditor of Sunrise Ginning Private

Page 4 of 32 Company Appeal (AT) (Ins.) No. 189 of 2026 with Company Appeal (AT) (Ins.) Nos. 1601 & 1703 of 2025 Limited (Corporate Debtor/Respondent No.3), under Section 61 of the

Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as the 'Code'),

against the order dated 01.09.2025 passed by the Ld. National Company Law

Tribunal, Ahmedabad Bench (Adjudicating Authority), in I.A. No. 88 of 2025

in C.P. (I.B.) No. 314 of 2022. The said application was filed by Respondent

No. 1, State Tax Officer, Unit-96, Dhoraji, Gujarat, in relation to its claim

of Rs.3,84,70,060/- arising from the statutory dues of the Corporate Debtor.

Respondent No. 2, CA Vinod T. Agrawal, is the Resolution Professional of

the Corporate Debtor, while Respondent No. 4, M/s Sumit Cotton Co. &

Ors., is the Successful Resolution Applicant.

2. By the impugned order, the Learned Adjudicating Authority partly

allowed I.A. No. 88 of 2025 and directed the Resolution Professional to

consider the State Tax Officer as a "secured operational creditor" to the

extent of the properties covered by the attachment proceedings initiated by

the State Tax Department. This appeal would henceforth be referred to as the

First Appeal.

3. The Second Appeal, CA (AT) (Ins.) No. 1601 of 2025, has been

preferred by the State Tax Officer, Unit-96, Dhoraji, Gujarat, under Section

61 of the Code and it arises from the same impugned order regarding

treatment of the State Tax Department's claim as secured creditor as in the

First Appeal preferred by Bank of Baroda. The Appellant herein seeks setting

aside of the said order and consequential recognition and treatment of its

Page 5 of 32 Company Appeal (AT) (Ins.) No. 189 of 2026 with Company Appeal (AT) (Ins.) Nos. 1601 & 1703 of 2025 aforesaid claim as a secured creditor at par with Bank of Baroda, including

for payment in accordance with Section 53(1)(b)(ii) of the Code.

4. The Third Appeal, CA (AT) (Ins.) No. 1703 of 2025 has also been

preferred by the State Tax Officer, Unit-96, Dhoraji, Gujarat, against the

order dated 16.10.2025 passed by the Ld. Adjudicating Authority in I.A. (Plan)

No. 36 of 2024 in C.P. (I.B.) No. 314 of 2022, whereby the Resolution Plan of

the Corporate Debtor was approved. The Appellant herein seeks setting aside

of the said order and the Resolution Plan approved thereby, insofar as it

affects the Appellant's claim of Rs.3,84,70,060/- and its treatment pursuant

to the order dated 01.09.2025.

Brief Facts:

5. Brief facts of the case relevant for deciding these appeals are as follows:

i. The Corporate Debtor, namely Sunrise Ginning Private Limited,

is a private limited company incorporated under the Companies Act,

1956. It is engaged in the business of buying and selling cotton bales

and was registered under the Gujarat Value Added Tax Act, 2003

("GVAT Act") and the Central Sales Tax Act, 1956 ("CST Act").

ii. In respect of the assessment year 2015-16, the State Tax

Department determined tax dues of the Corporate Debtor comprising

Rs.2,64,24,189/- towards VAT and Rs.7,77,616/- towards CST,

aggregating to Rs.2,72,01,805/- towards principal tax. Interest of

Page 6 of 32 Company Appeal (AT) (Ins.) No. 189 of 2026 with Company Appeal (AT) (Ins.) Nos. 1601 & 1703 of 2025 Rs.1,12,68,255/- was also computed, resulting in total dues of

Rs.3,84,70,060/-.

iii. The assessment proceedings culminated in an assessment order

dated 30.03.2021 passed by the State Tax Officer, Dhoraji, in respect

of the assessment year 2015-16. The Corporate Debtor thereafter filed

a first appeal application on 22.06.2021 against the said assessment

order.

iv. While the aforesaid tax liability remained unpaid, recovery

proceedings were initiated by the State Tax Department against the

Corporate Debtor. A notice under Section 200 of the Bombay Land

Revenue Code was issued on 21.09.2021 in relation to attachment of

the properties of the Corporate Debtor towards recovery of the tax dues.

v. The State Tax Department thereafter continued the recovery

proceedings and issued a notice dated 27.12.2021 in respect of the

properties of the Corporate Debtor situated at Dhoraji, District Rajkot.

The attachment proceedings concerned, inter alia, properties bearing

Survey No. 595/4 Paiki-1and Survey No. 595/5 Paiki-1.

vi. During the pendency of the aforesaid recovery and attachment

proceedings, Shrinathji Spintex Private Limited filed an application

under Section 9 of the Insolvency and Bankruptcy Code, 2016 against

the Corporate Debtor on 25.11.2022, claiming an operational debt of

Rs.5,77,85,361/-, comprising principal dues of Rs.3,44,98,716/- and

interest of Rs.2,32,86,645/-.

Page 7 of 32 Company Appeal (AT) (Ins.) No. 189 of 2026 with Company Appeal (AT) (Ins.) Nos. 1601 & 1703 of 2025 vii. The Ld. NCLT, Ahmedabad Bench (Adjudicating Authority),

admitted the said Section 9 application by order dated 20.07.2023 in

C.P. (I.B.) No. 314 of 2022 and commenced the Corporate Insolvency

Resolution Process against Sunrise Ginning Private Limited. CA Vinod

T. Agrawal was appointed as the Interim Resolution Professional and

subsequently continued as the Resolution Professional.

viii. The State Tax Officer submitted its claim before the Resolution

Professional through Form B on 02.08.2023, claiming Rs.3,84,70,060/-

towards the statutory dues for assessment year 2015-16, comprising

Rs.2,72,01,805/- towards tax and Rs.1,12,68,255/- towards interest.

ix. The claim submitted by the State Tax Officer was examined by

the Resolution Professional and the entire claim of Rs.3,84,70,060/-

was provisionally admitted on 10.08.2023, with the rejected amount

recorded as NIL. The claim was admitted as an operational debt.

x. During the CIRP, the Resolution Plan of the Corporate Debtor was

placed before the Committee of Creditors for consideration and

approval. The Resolution Plan recorded the admitted claim of the State

Tax Department at Rs.3,84,70,060/- and also recorded Bank of Baroda

as the secured financial creditor having the primary charge over the

land and buildings of the Corporate Debtor, while the State Tax

Department's charge was recorded as secondary.

xi. Thereafter, the State Tax Officer filed I.A. No. 88 of 2025 under

Section 60(5) of the Insolvency and Bankruptcy Code read with Rule 11

Page 8 of 32 Company Appeal (AT) (Ins.) No. 189 of 2026 with Company Appeal (AT) (Ins.) Nos. 1601 & 1703 of 2025 of the NCLT Rules in relation to its claim and the properties which had

been subjected to the attachment proceedings.

xii. By the impugned order dated 01.09.2025, the Learned

Adjudicating Authority partly allowed I.A. No. 88 of 2025 and directed

the Resolution Professional to consider the State Tax Officer as a

"secured operational creditor" to the extent of the properties covered by

the attachment order dated 05.01.2022.

xiii. The aforesaid order dated 01.09.2025 passed in I.A. No. 88 of

2025 in C.P. (I.B.) No. 314 of 2022 is under challenge in First and

Second Appeals herein.

xiv. The Third Appeal has arisen from order passed by the Ld.

Adjudicating Authority in IA (Plan) No. 36 of 2024 filed by RP in the

same CP seeking approval of resolution plan submitted by M/s Sumit

Cotton Co. & Ors./Respondent No.4. The said IA was allowed by the Ld.

Adjudicating Authority on 16.10.2025. In the said order, Ld.

Adjudicating Authority treated the State Tax Department, Gujarat, as

secured operational creditor and also decided that the amount

earmarked for the State Tax Dept. be kept in an escrow account till the

pending appeals before this Appellate Tribunal are disposed of. The

appellant is aggrieved by treatment of his claim as secured operational

debt instead of secured debt. He has also sought disbursal of his claim

as secured creditor in accordance with Section 53(1)(b)(ii) of the Code.

Page 9 of 32 Company Appeal (AT) (Ins.) No. 189 of 2026 with Company Appeal (AT) (Ins.) Nos. 1601 & 1703 of 2025

6. These three appeals essentially arise from the claim of State Tax Dept

Gujarat, to be treated as secured creditor in accordance with decision of

Hon'ble Supreme Court in Rainbow Papers and its consequent treatment in

the resolution plan already approved by the Ld. Adjudicating Authority. Since

the issues in the appeals are the same, these are being disposed of together

through a single order. The first appeal is being treated as the main appeal.

Submissions of the Appellant/Bank of Baroda

7. Ld. Counsel for Bank of Baroda submits that the State Tax

Dept./Respondent No.1 voluntarily participated in the CIRP as an

"Operational Creditor" and submitted its claim before the Resolution

Professional in Form B. The claim was provisionally admitted, and despite

participating in the CIRP in such capacity, R1 remained silent for more than

one year and did not object to its classification. It was only thereafter that R1

sought to assert a secured status and claim a superior right over the assets

of the Corporate Debtor. Such belated objection and change in stand is an

afterthought.

8. He states that under Section 3(30) read with Section 3(31) of the IBC,

2016, existence of a valid security interest is essential for a creditor to qualify

as a "Secured Creditor". Mere statutory tax dues under the GVAT or CST Act

do not ipso facto constitute a security interest within the meaning of the IBC.

The statutory power to recover tax dues cannot, by itself, be equated with a

security interest recognised under the Code.

Page 10 of 32 Company Appeal (AT) (Ins.) No. 189 of 2026 with Company Appeal (AT) (Ins.) Nos. 1601 & 1703 of 2025

9. He submits that neither the IBC, 2016 nor the Companies Act, 2013

recognises any category known as a "Secured Operational Creditor." The Code

separately recognises Operational Creditors and Secured Creditors and does

not create any hybrid category carrying an independent priority. Hence, the

attempt to classify or treat R1 as a "Secured Operational Creditor" is ex facie

unsustainable.

10. It is further submitted that the Resolution Plan of the Corporate Debtor

has already been approved by the Ld. Adjudicating Authority vide order dated

16.10.2025. The rights and claims of the stakeholders are therefore required

to be considered within the framework of the IBC and the approved Resolution

Plan, and R1 cannot seek a treatment or priority which is not available under

the statutory scheme.

11. He states that a statutory charge does not ipso facto confer superior

priority over the valid and subsisting security interest of a Secured Financial

Creditor. Bank of Baroda holds a valid and subsisting security interest and

first charge over the assets of the Corporate Debtor. R1 cannot displace or

override such security interest merely by relying upon statutory provisions

relating to recovery of tax dues.

12. Ld. Counsel submits that reliance upon the judgment of Hon'ble SC in

State Tax Officer v. Rainbow Papers Limited, (2023) 9 SCC 545 is

misplaced. The said judgment does not amend Section 53 of the IBC or

displace the statutory waterfall mechanism prescribed therein, nor does it

take away the overriding effect of Section 238 of the IBC, 2016. The rights and

Page 11 of 32 Company Appeal (AT) (Ins.) No. 189 of 2026 with Company Appeal (AT) (Ins.) Nos. 1601 & 1703 of 2025 priorities of creditors are required to be determined in accordance with the

provisions of the IBC.

13. Ld. Counsel further submits that the IBC, 2016 does not impose any

independent liability upon one Secured Creditor to satisfy or deposit the claim

of another creditor. The tax claim of R1 is against the Corporate Debtor and

cannot be converted into an independent liability of Bank of Baroda.

Consequently, the reliefs sought by R1 against Bank of Baroda in

CA/AT/INS/1601/2025 are wholly misconceived and contrary to the

statutory scheme of the IBC.

14. It is submitted that, in view of the recent amendments to the IBC and

particularly the Explanation to Section 3(31), a security interest can arise only

when created by way of an agreement or arrangement between two or more

parties and not merely by operation of law. No agreement, arrangement or

consensual security interest has been created in favour of R1 in the present

case. The State Tax claim arises from statutory dues alone and, therefore,

cannot constitute a security interest within the meaning of the IBC.

15. Ld. Counsel submits that reliance upon State Tax Officer v. Rainbow

Papers Limited (supra), is misplaced in view of the subsequent amendments

to Sections 3(31) and 53(1)(e)(i) of the IBC. The amended provisions have

clarified the legal position concerning statutory dues and security interest,

and the ratio relied upon by R1 cannot be applied without considering the

amended statutory framework.

Page 12 of 32 Company Appeal (AT) (Ins.) No. 189 of 2026 with Company Appeal (AT) (Ins.) Nos. 1601 & 1703 of 2025

16. It is stated that R1 has, in any event, failed to establish the existence

of any first charge over the assets of the Corporate Debtor. No document,

charge registration, agreement or other legally enforceable instrument has

been placed on record to substantiate the assertion of a first charge. A mere

assertion of such charge cannot displace the valid and subsisting security

interest.

17. Ld. Counsel concludes that, in the absence of any valid security interest

or established first charge in favour of R1, distribution of the assets of the

Corporate Debtor is required to be governed by the waterfall mechanism

under Section 53 of the IBC, 2016. Government dues fall under Section

53(1)(e) and cannot be elevated to the status of secured claims in the absence

of a legally recognised security interest.

Submissions of the Respondent No.1/ State Tax Officer

18. Ld. Counsel for Respondent No. 1, State Tax Officer, submits that the

tax dues in question pertain to the Assessment Year 2015-16 and amount to

Rs. 3,84,70,060/- under the GVAT Act, 2003 and the CST Act, 1956. It is

submitted that the Corporate Debtor had challenged the assessment orders

passed by the concerned Department before the higher Authority. However,

the said challenge was rejected vide order dated 31.10.2021. Thereafter, the

Corporate Debtor did not challenge the said order before any higher Forum.

Consequently, the assessment orders and the order dated 31.10.2021

attained finality. Ld. Counsel submits that the assessment orders having been

passed by a Quasi-Judicial Authority and having attained finality, they are

Page 13 of 32 Company Appeal (AT) (Ins.) No. 189 of 2026 with Company Appeal (AT) (Ins.) Nos. 1601 & 1703 of 2025 binding upon the Corporate Debtor and the liability determined therein

cannot be reopened in the present proceedings.

19. Ld. Counsel further submits that the claim filed by Respondent No. 1

on 01.08.2023 was provisionally admitted by Respondent No. 2 on

10.08.2023 and Respondent No. 1 was treated as an Operational Creditor. It

is submitted that, notwithstanding the filing of the claim in Form-B and its

provisional admission, Respondent No. 2 subsequently erred in treating

Respondent No. 1 as not being a Secured Creditor. According to the

Respondent, the Resolution Professional failed to consider the provisions of

Section 3(30) of the Insolvency and Bankruptcy Code, 2016 read with

Regulation 21-A of the IBBI (Liquidation Process) Regulations, 2016. Ld.

Counsel also relies upon Section 30(2)(e) of the Code and submits that the

Resolution Professional is required to ensure that a resolution plan does not

contravene any provision of law. It is therefore submitted that the provisions

of the GVAT Act, 2003 and the provisions of the IBC, 2016 are required to be

considered harmoniously and conjointly.

20. Ld. Counsel submits that Respondent No. 1 had submitted its claim as

a Secured Creditor before the Resolution Professional and that, by virtue of

the statutory provisions, a charge had been created in favour of the

Respondent over the properties of the Corporate Debtor. It is submitted that

the amount of tax payable by the Corporate Debtor had already been

adjudicated and determined by the State Tax Department, which is a Quasi-

Judicial Authority. According to the Respondent, the statutory charge arising

Page 14 of 32 Company Appeal (AT) (Ins.) No. 189 of 2026 with Company Appeal (AT) (Ins.) Nos. 1601 & 1703 of 2025 by operation of law constitutes a security interest for the purposes of the

Code. On this basis, Respondent No. 1 submits that it falls within the

definition of "Secured Creditor" and is consequently entitled to the benefits

and treatment available to a Secured Creditor under the IBC, 2016.

21. Ld. Counsel places reliance upon the judgment of the Hon'ble Supreme

Court in State Tax Officer v. Rainbow Papers Pvt. Ltd. and submits that the

issue of statutory dues under the GVAT Act and the status of the State as a

Secured Creditor has already been considered by the Hon'ble Supreme Court.

It is pointed out that in the said matter, the dues of VAT and CST were

assessed under the GVAT Act and the statutory dues were claimed by the

Sales Tax Authorities. The Hon'ble Supreme Court held that a resolution plan

which does not satisfy the requirements of Section 30(2) of the IBC would not

be binding upon the Central Government, State Government, statutory or

other authorities or creditors to whom statutory dues are owed. The

Respondent relies upon the observation that a resolution plan cannot bind

the State in respect of outstanding statutory dues where the requirements of

Section 30(2) have not been fulfilled.

22. Ld. Counsel further relies upon the findings of the Hon'ble Supreme

Court in Rainbow Papers concerning the interaction between Section 48 of

the GVAT Act and Section 53 of the IBC. It is submitted that the Hon'ble

Supreme Court held that Section 53 of the IBC did not override Section 48 of

the GVAT Act in the circumstances considered by the Court, since Section 48

was not contrary to or inconsistent with Section 53 or any other provision of

Page 15 of 32 Company Appeal (AT) (Ins.) No. 189 of 2026 with Company Appeal (AT) (Ins.) Nos. 1601 & 1703 of 2025 the IBC. The Court recognised that, under Section 53(1)(b)(ii), the debts owed

to a Secured Creditor, which included the State under the GVAT Act, were to

rank equally with the other specified debts mentioned therein. The Hon'ble

Supreme Court further observed that Section 3(30) of the IBC defines a

Secured Creditor as a creditor in whose favour a security interest exists and

that such security interest may be created by operation of law. It was also

observed that the definition of Secured Creditor under the IBC does not

exclude a Government or Governmental Authority.

23. Ld. Counsel further relies upon the judgment of this Appellate Tribunal

in "Cosmos Co-operative Bank Ltd. v. Kailash T. Shah & Ors Company

Appeal (AT)(INS) No. 774 of 2024". It is submitted that, from paragraph 56

onwards, this Hon'ble Tribunal considered Section 48 of the GVAT Act and

held that the provision creates a first charge over the property of the dealer in

respect of the amount payable towards tax, interest or penalty,

notwithstanding anything contained in any other law. According to the

Respondent, such charge is created automatically by operation of law and

does not depend upon an agreement between the parties. The charge arises

once the tax liability crystallises through assessment. Ld. Counsel submits

that, in the present case also, the assessment orders were passed prior to the

commencement of CIRP and, therefore, the statutory charge had already come

into existence before the initiation of the CIRP. Reliance is also placed upon

the judgment of the Hon'ble Gujarat High Court in Shree Radhe Krishna

Ginning and Pressing Private Ltd. v. State of Gujarat, SCA No. 5413 of

Page 16 of 32 Company Appeal (AT) (Ins.) No. 189 of 2026 with Company Appeal (AT) (Ins.) Nos. 1601 & 1703 of 2025 2022, decided on 29.03.2022, wherein it was held, as relied upon by the

Respondent, that once such assessment is made and attachment is effected,

a charge over the immovable property comes into existence by operation of

law under Section 48 of the GVAT Act.

24. Ld. Counsel submits that this Appellate Tribunal, in the aforesaid

judgment, has also considered the effect of the judgment of the Hon'ble

Supreme Court in Rainbow Papers and the scope of Section 238 of the IBC. It

is submitted that this Hon'ble Tribunal recorded that Rainbow Papers settled

the position that dues covered under Section 48 of the GVAT Act constitute a

security interest within the meaning of Section 3(31) of the IBC and,

consequently, the State Tax Department qualifies as a Secured Creditor. It

was further observed, as relied upon by the Respondent, that exclusion of

such dues from consideration in a resolution plan would render the plan non-

compliant with Section 30(2) of the Code. Ld. Counsel submits that Section

238 of the IBC gives the Code an overriding effect over other laws only where

there is an inconsistency. Where, however, the statutory first charge under

another legislation is itself recognised as a security interest under the IBC,

there is no inconsistency requiring one provision to override the other.

According to the Respondent, Section 48 of the GVAT Act and Section 53 of

the IBC can therefore operate harmoniously.

25. Ld. Counsel further submits that the distinction drawn in the judgment

of this Hon'ble Tribunal between the present statutory charge and cases

where no statutory security interest exists is material. It is submitted that,

Page 17 of 32 Company Appeal (AT) (Ins.) No. 189 of 2026 with Company Appeal (AT) (Ins.) Nos. 1601 & 1703 of 2025 while considering the judgments in Ghanshyam Mishra and Sons Pvt. Ltd.

v. Edelweiss Asset Reconstruction Company Ltd. and Paschimanchal

Vidyut Vitran Ltd. v. Raman Ispat Private Limited, this Hon'ble Tribunal

examined whether the concerned statutory legislation created a first charge

or security interest over the property of the Corporate Debtor. According to

the Respondent, in Paschimanchal Vidyut, there was no statutory provision

creating a first charge or security interest over the property of the Corporate

Debtor and, therefore, the dues in that case remained operational in nature.

The Respondent submits that the present case stands on a different footing

because Section 48 of the GVAT Act expressly creates a statutory first charge

and, in the present matter, the assessment orders were passed before

commencement of CIRP. Relying upon Rainbow Papers, the Respondent

submits that such statutory charge constitutes a security interest within the

meaning of Section 3(31) of the IBC and consequently elevates the State Tax

Department to the status of a Secured Creditor. Thus, according to the

Respondent, Paschimanchal Vidyut is factually distinguishable and does not

dilute the applicability of Rainbow Papers to the present case.

26. Summing up, Respondent No.1 prays that this Appellate Tribunal may

consider the claim submitted by Respondent No.1 before the Resolution

Professional as a claim of a Secured Creditor and direct Respondent No.2 to

disburse the amount in accordance with Section 53(1)(b)(ii) of the Code. It is

further prayed that, upon consideration of the facts and the legal position

Page 18 of 32 Company Appeal (AT) (Ins.) No. 189 of 2026 with Company Appeal (AT) (Ins.) Nos. 1601 & 1703 of 2025 relied upon by Respondent No.1, the present appeal preferred by the

Appellant may be rejected.

Submissions of Respondent No.2/Resolution Professional

27. Ld. Counsel submits that the answering Respondent has consistently

taken the position, including in the replies filed to the present Appeals, that

the dues claimed by the State Tax Officer cannot be treated as secured dues

merely on the basis of the subsequent assertion made by the State Tax Officer.

It is submitted that the State Tax Officer has proceeded on the erroneous

assumption that the dues arising under the Central Sales Tax Act, 1956 ("CST

Act") must also be entitled to secured creditor status along with the GVAT

dues.

28. He submits that the aforesaid contention is legally untenable since the

CST Act does not create any statutory charge or security interest over the

assets of the Corporate Debtor. It is submitted that the existence of statutory

dues, by itself, does not confer upon such dues the character of secured debt.

The secured status of statutory dues has to be founded upon the relevant

statutory provision creating a charge or security interest over the assets of

the debtor.

29. Ld. Counsel places reliance upon the judgment of the Hon'ble Supreme

Court in State Tax Officer v. Rainbow Papers Limited (Supra), and submits that

the decision recognises secured status in respect of dues under a statute,

which expressly creates a first charge, such as Section 48 of the GVAT Act. It

Page 19 of 32 Company Appeal (AT) (Ins.) No. 189 of 2026 with Company Appeal (AT) (Ins.) Nos. 1601 & 1703 of 2025 is submitted that the said principle cannot be extended to dues arising under

the CST Act, which does not create any such statutory charge over the assets

of the Corporate Debtor.

30. Ld. Counsel further relied upon the decision of this Appellate Tribunal

in State Tax Officer v. Nitin Narang, RP Afcan Impex Pvt. Ltd., C.A.(AT)

(Ins.) No. 1804/2025, decided on 07.01.2026, wherein the dues under the

CST Act were not treated as secured debt. It is submitted that the said

decision squarely supports the position of the answering Respondent that

CST dues cannot be treated as secured debt in the absence of a statutory

charge under the CST Act.

31. He submits that the enactment of the Insolvency and Bankruptcy Code

(Amendment) Act, 2026 directly addresses the ambiguity arising from the

decision in Rainbow Papers. It is submitted that the amendment expressly

amends Section 3(31) of the Code and restricts the expression "security

interest" to rights arising from a contractual arrangement or transaction,

thereby excluding charges created purely by operation of law.

32. It is submitted that pursuant to the aforesaid Public Announcement,

the State Tax Officer submitted its claim in Form-B dated 01.08.2023 for a

total amount of Rs.3,84,70,060/-, purportedly arising under the Gujarat

Value Added Tax Act, 2003 ("GVAT Act") and the Central Sales Tax Act, 1956

("CST Act"). It is submitted that, upon verification of the assessment orders,

statutory records and documents submitted by the State Tax Officer along

Page 20 of 32 Company Appeal (AT) (Ins.) No. 189 of 2026 with Company Appeal (AT) (Ins.) Nos. 1601 & 1703 of 2025 with Form-B, the answering Respondent admitted the claim to the extent of

Rs.3,84,70,060/-.

33. Ld. Counsel submits that the assessment orders and claim documents

furnished by the State Tax Officer itself clearly and unequivocally bifurcated

the admitted amount into two distinct components. It is submitted that the

GVAT dues constituted approximately Rs.3,73,70,319/-, whereas the CST

dues constituted approximately Rs.10,99,741/-.

34. He submits that the distinction between the GVAT dues and the CST

dues is material for determining their respective treatment under the Code. It

is submitted that while the claim itself comprised amounts arising under two

separate enactments, the State Tax Officer cannot seek to automatically

extend the treatment applicable to GVAT dues to CST dues when the CST Act

does not create any statutory charge over the assets of the Corporate Debtor.

35. It is submitted by Ld. Counsel that, in view of the said amendment, the

dues claimed by the State Tax Officer are amenable to loss of priority and

displacement in the waterfall contemplated under the Code. Ld. Counsel

submits that the legislative intervention essentially reverses the position

flowing from Rainbow Papers and provides greater clarity regarding the

treatment and priority of statutory dues under the Code.

36. Ld. Counsel submits that, accordingly, the State Tax Officer cannot be

treated as a secured creditor under the present scheme of the Code. It is

submitted that the explanation to Section 3(31) is worded as a provision "for

Page 21 of 32 Company Appeal (AT) (Ins.) No. 189 of 2026 with Company Appeal (AT) (Ins.) Nos. 1601 & 1703 of 2025 the removal of doubts" and, according to the answering Respondent, such

wording indicates its clarificatory character and supports its retrospective

applicability.

37. Summing up, Ld. Counsel submits that the classification of the State

Tax Officer as a "Secured Operational Creditor" deserves to be set aside and

that the claim of the State Tax Officer ought to be treated in accordance with

the applicable provisions of the Code, the statutory framework governing the

respective dues and the judicial precedents relied upon by the answering

Respondent.

Analysis and Findings

38. We have gone through the documents available on record and heard

the parties at length.

39. The issue before us is whether the State Tax Officer could be treated as

a "secured creditor" in respect of its claim of Rs.3,84,70,060/-

(Rs.3,73,70,319/- towards GVAT dues and Rs.10,99,741/- towards CST

dues), and whether the finding of the Adjudicating Authority to that effect is

sustainable in view of the GVAT Act, the IBC, the 2026 amendment to Section

3(31), and the facts of the present case.

40. The question to be answered here is whether the State Tax Officer had

a security interest recognised under the IBC so as to claim the status of a

secured creditor? There is no dispute that the State Tax Officer had a valid

tax claim against the Corporate Debtor and that its claim of Rs.3,84,70,060/-

Page 22 of 32 Company Appeal (AT) (Ins.) No. 189 of 2026 with Company Appeal (AT) (Ins.) Nos. 1601 & 1703 of 2025 was admitted by the Resolution Professional. The dispute is regarding the

status of that claim under the IBC. The claim itself consists of two

components viz. Rs.3,73,70,319/- towards GVAT dues and Rs.10,99,741/-

towards CST dues. The Appellant-Bank of Baroda submits that the State Tax

Officer itself filed its claim in Form-B as an Operational Creditor and, in the

column relating to security interest, stated "Not Applicable". It is further

submitted that the State Tax Officer did not claim any security interest at the

relevant stage and raised the issue of a statutory charge only after the CIRP

had substantially progressed. The Resolution Professional also states that the

claim was admitted on the basis of the documents and information supplied

by the State Tax Officer itself.

41. The State Tax Officer, on the other hand, submits that the entry "Not

Applicable" in Form-B cannot take away a statutory right which arises by

operation of law. It relies upon Section 48 of the GVAT Act, which provides

that the tax, interest or penalty payable by a dealer shall be a first charge on

the property of such dealer. It is therefore submitted that the charge arose

automatically and did not require any separate agreement with the Corporate

Debtor. The State Tax Officer further relies upon Rainbow Papers, wherein

the Supreme Court considered Section 48 of the GVAT Act and held that the

statutory first charge created thereunder could amount to a security interest

under the then existing Section 3(31) of the IBC. The Supreme Court also held

that the State could fall within the definition of a secured creditor where such

security interest was created by operation of law.

Page 23 of 32 Company Appeal (AT) (Ins.) No. 189 of 2026 with Company Appeal (AT) (Ins.) Nos. 1601 & 1703 of 2025

42. If the matter were to be examined only with reference to the law as it

stood when the Impugned Order was passed, the State Tax Officer had a

substantial basis for relying upon Rainbow Papers, in respect of the GVAT

dues. The Adjudicating Authority relied upon the statutory charge, the

assessment orders and the attachment proceedings which had taken place

before commencement of CIRP. The record shows that attachment notices had

been issued before commencement of CIRP. However, the present Appeal has

to be decided in the light of the law applicable when we determine the issue,

particularly where there has been a subsequent statutory clarification directly

dealing with the question in dispute.

43. Before examining whether the statutory charge claimed by the State

Tax Officer constitutes a "security interest" under the Code, we consider it

appropriate to first notice the statutory provision governing the expression

"security interest", particularly in view of the subsequent legislative

amendment to Section 3(31) of the Code. The amended provision has a direct

bearing on the controversy before us and, therefore, Section 3(31) of the Code

as amended by the Insolvency and Bankruptcy Code (Amendment) Act, 2026,

is extracted below:

"(31) 'security interest' means right, title or interest or a claim to property, created in favour of, or provided for a secured creditor by a transaction which secures payment or performance of an obligation and includes mortgage, charge, hypothecation, assignment and encumbrance or any other agreement or arrangement securing payment or performance of any obligation or any other security interest:

Page 24 of 32

Company Appeal (AT) (Ins.) No. 189 of 2026 with Company Appeal (AT) (Ins.) Nos. 1601 & 1703 of 2025 Explanation--For the removal of doubts, it is hereby clarified that the security interest shall exist only if it creates a right, title or interest or a claim to a property pursuant to an agreement or arrangement, by the act of two or more parties, and shall not include a security interest created merely by operation of any law for the time being in force;"

(Emphasis supplied)

"Section 53(1)(e)(i) of the Insolvency and Bankruptcy Code, 2016 reads as follows:

"(e) the following debts shall be paid in the following order of priority, namely: --

(i) any amount due to the Central Government and the State Government, including the amount to be received on account of the Consolidated Fund of India and the Consolidated Fund of a State, if any, in respect of the whole or any part of the period of two years preceding the liquidation commencement date;"

44. These Amendments to Section 3 and 53 of the Code were notified on

22.05.2026 and the amendments to Section 3 and Section 53 of the Code

came into effect w.e.f. 26.05.2026. The amendment to Section 3(31) of the

Code is therefore of central importance. Parliament has specifically clarified

the meaning of "security interest" and excluded a right which is created

merely by operation of law. The Explanation has been introduced "for the

removal of doubts". A provision which is clarificatory in nature does not

ordinarily create a new law from the date of its enactment; its purpose is to

explain and make clear the meaning of the existing statutory provision from

Page 25 of 32 Company Appeal (AT) (Ins.) No. 189 of 2026 with Company Appeal (AT) (Ins.) Nos. 1601 & 1703 of 2025 the date of the enactment of the statutory provision. Such a provision

therefore operates retrospectively and applies to pending proceedings, unless

the statute expressly provides otherwise. The mere fact that the clarification

was enacted in 2026 does not mean that we could ignore it while deciding a

pending appeal arising from an earlier order. The amendment has not created

a new tax liability or taken away the State Tax Officer's right to recover its tax

dues. It has only clarified whether a statutory charge, by itself, can be treated

as a "security interest" for the purposes of the IBC. That question is

governed by the IBC, and the clarification must therefore be given effect while

deciding the present Appeal.

45. This distinction is important because the State Tax Officer continues to

have its tax claim. What it cannot claim is the additional status of a secured

creditor under the IBC merely because the taxing statute created a first

charge over the property. Thus, there is no retrospective extinguishment of

the tax debt or of the State's right to recover the same. The change is only in

the manner in which that claim is treated under the insolvency framework.

46. The amendment of Section 53 on the other hand provides clarity about

the status of Government and other statutory dues under the waterfall

mechanism provided in Section 53. This amendment is relevant in the context

of the claim of State Tax Officer for provision towards its admitted claim under

Section 53(1)(b)(ii) of the Code as Secured Creditor. The amendment places

Government dues much lower in priority.

Page 26 of 32 Company Appeal (AT) (Ins.) No. 189 of 2026 with Company Appeal (AT) (Ins.) Nos. 1601 & 1703 of 2025

47. This matter was recently considered by a coordinate Bench of this

Appellate Tribunal in Vinay Gupta (Suspended Director of Satellite Cables

Pvt. Ltd.) v. Oswal Minerals Limited & Anr. & Ors., Company Appeal (AT)

(Insolvency) No. 1038 of 2024 & I.A. No. 2352 of 2026, along with

connected Company Appeal (AT) (Insolvency) No. 1032 of 2024, decided

on 21.08.2026. The Principal Bench considered the Explanation inserted in

Section 3(31) of the IBC by the Insolvency and Bankruptcy Code (Amendment)

Act, 2026 and held that the amendment is clarificatory in nature and, being

an Explanation, has retrospective effect. It further held that the amendment

excludes security interests created merely by operation of law and thereby

overrules the position in Rainbow Papers to the extent that a statutory charge

created by operation of law could be treated as a "security interest" under

Section 3(31). Consequently, Government dues cannot claim the status or

priority of secured creditors merely on the basis of a security interest arising

by operation of law. The relevant para 99 of the said judgment is extracted

below:

'99. We further note that even though the Hon'ble Supreme Court in State Tax Officer (supra) interpreted the definition of 'secured creditor' to hold that a charge created by statutory law could be considered a 'security interest', treating government authorities as secured creditors, but the recent amendment in the IBC Code, notified on 26th May 2026, in an Explanation to Section 3(31) has restored the original legislative intent. This explanation clarifies that security interest shall exist only if it creates a right, title or interest or a claim to a property pursuant to an agreement or arrangement, by the act of two or more parties. It shall not include

Page 27 of 32 Company Appeal (AT) (Ins.) No. 189 of 2026 with Company Appeal (AT) (Ins.) Nos. 1601 & 1703 of 2025 a security interest created merely by operation of any law. This overrules the Rainbow Papers position and ensures statutory dues cannot claim secured creditor status. Being an explanation this has retrospective effect as a clarificatory amendment. Thus, the Amendment Explanation expressly excludes security interests created merely by operation of law. Thus, the Government dues cannot claim priority over secured creditors.'

48. The State Tax Officer's reliance upon the fact that the charge under

Section 48 had arisen before commencement of CIRP therefore is not relevant

here. The relevant question is whether such charge qualifies as a "security

interest" under Section 3(31) of the IBC, and after the legislative clarification,

a charge arising only by operation of law cannot be so treated.

49. The attachment proceedings relied upon by the State Tax Officer also

do not change this position. The fact that attachment notices had been issued

before commencement of CIRP demonstrates that the State had taken steps

to recover its dues, but an attachment is an enforcement step and is not, by

itself, a security interest arising from an agreement or arrangement between

the parties. The State Tax Officer has not asserted any mortgage,

hypothecation, charge, pledge or other security created by agreement with the

Corporate Debtor. Its entire claim of security rests upon Section 48 of the

GVAT Act and the consequential recovery proceedings. Therefore, the

existence of the attachment proceedings cannot take the State Tax Officer

outside the amended definition of "security interest".

Page 28 of 32 Company Appeal (AT) (Ins.) No. 189 of 2026 with Company Appeal (AT) (Ins.) Nos. 1601 & 1703 of 2025

50. The position becomes clearer when we compare the security interest of

Bank of Baroda with the right claimed by the State Tax Officer. The Bank's

security interest over the assets of the Corporate Debtor arose from its lending

and security documents based on agreements. The State Tax Officer, on the

other hand, does not claim any security created by agreement with the

Corporate Debtor; but solely on the basis that the taxing statute declares the

tax dues to be a first charge. The two interests therefore arise from entirely

different sources. The amended Section 3(31) recognises the former, but

excludes the latter. The fact that the Bank's security interest was already

subsisting over the relevant assets is therefore also a material circumstance

while considering the effect of the State's subsequent assertion of a statutory

charge. The Resolution Professional has recorded that the assets over which

the State Tax Officer subsequently asserted its charge were already subject to

a valid and subsisting security interest in favour of Bank of Baroda.

51. The CST component stands on an even clearer footing. The State Tax

Officer's claim includes approximately Rs.10,99,741/- towards CST dues. The

Resolution Professional has specifically contended that the CST Act does not

itself create a statutory first charge over the assets of the Corporate Debtor.

This Appellate Tribunal has considered this issue in State Tax Officer v. Nitin

Narang (supra), and held that CST dues cannot be treated as secured debt

merely on the basis of Section 9(2) of the CST Act. Thus, the CST component

could not have been treated as secured in the same manner as the GVAT

dues. The finding recorded by Ld. Adjudicating Authority treating the entire

Page 29 of 32 Company Appeal (AT) (Ins.) No. 189 of 2026 with Company Appeal (AT) (Ins.) Nos. 1601 & 1703 of 2025 claim of State Tax Dept as secured operational debt, was erroneous as CST

dues were not to be treated as secured debt. Adjudicating Authority was

required to examine the two components separately rather than treating the

entire claim as secured on the basis of Section 48 of the GVAT Act.

52. We must also consider the Impugned Order fairly. The order was passed

on 01.09.2025. At that time, Rainbow Papers was the governing judgment of

the Hon'ble Supreme Court and had recognised a statutory first charge under

Section 48 of the GVAT Act as a security interest under the then existing law.

The Adjudicating Authority's conclusion therefore cannot simply be described

as irrational, when examined in the light of the prevailing legal position as on

the date of the impugned order. However, the question before us is whether

that finding can continue to stand in the present Appeal after the subsequent

legislative clarification. Since the amendment is clarificatory and is intended

to remove doubts regarding the meaning of "security interest", it has to be

taken into account while deciding the pending Appeal. A pending appeal

cannot be decided by continuing an interpretation which has subsequently

been clarified by Parliament.

53. We are therefore not persuaded by the submission that allowing the

present Appeal would amount to retrospectively taking away an accrued

proprietary right of the State. The State's right to recover tax remains intact,

what is affected by the amendment is the treatment of state's claim during

CIRP proceedings. The State cannot claim the status of a secured creditor on

the basis of a statutory charge which, by reason of the Explanatory proviso to

Page 30 of 32 Company Appeal (AT) (Ins.) No. 189 of 2026 with Company Appeal (AT) (Ins.) Nos. 1601 & 1703 of 2025 Section 3(31), does not constitute a security interest under the IBC. The State

remains entitled to the treatment available to its admitted claim under the

Code and the approved Resolution Plan.

54. Based on consideration of the facts and the law, we find that the State

Tax Officer has an admitted and enforceable tax claim, but does not have a

security interest under the Code, merely by virtue of Section 48 of the GVAT

Act. The GVAT component, though protected by a statutory first charge under

the taxing statute, cannot be treated as a security interest under amended

Section 3(31) of the Code, when the charge arises only by operation of law.

The CST component stands on an even weaker footing, since the CST Act itself

does not create such a first charge.

55. The position that emerges from the above discussion is that the State

Tax Officer's claim of Rs.3,84,70,060/- shall remain admitted to the extent

already admitted by the Resolution Professional. However, the State Tax

Officer cannot be treated as a secured creditor under the Code merely on the

basis of the statutory charge under Section 48 of the GVAT Act. The State Tax

Officer shall be treated as an Operational Creditor in respect of its admitted

statutory dues. Its claim does not disappear; it simply does not carry the

status of a secured debt under the IBC.

56. Accordingly, the Company Appeal (AT) (Ins) No.189 of 2026 filed by

Bank of Baroda is allowed. The entire claim of the State Tax Department

would be treated as Operational Debt. The Company Appeal (AT) (Ins) No.

1601 of 2025 & Company Appeal (AT) (Ins) No. 1703 of 2025 filed by the State

Page 31 of 32 Company Appeal (AT) (Ins.) No. 189 of 2026 with Company Appeal (AT) (Ins.) Nos. 1601 & 1703 of 2025 Tax Officer are dismissed. Resultant modifications if any, to the resolution

plan may be carried out in terms of the provisions of the Code. Pending IAs if

any are closed. There would be no order as to costs.

[Justice Sharad Kumar Sharma] Member (Judicial)

[Arun Baroka] Member (Technical)

[Indevar Pandey] Member (Technical) Place: New Delhi

Harleen/ Pragya (LRA)

Page 32 of 32 Company Appeal (AT) (Ins.) No. 189 of 2026 with Company Appeal (AT) (Ins.) Nos. 1601 & 1703 of 2025