In a recent ruling, the New Delhi bench of the National Company Law Appellate Tribunal (NCLAT) has held that claims arising under section 11E of the Central Excise Act, 1944 not amounts to secured debt.The Tribunal viewed that the adjudicating authority had not erred in considering the appellant’s claim as an operational debt, and that the operational creditor was entitled to payment under section 30(2)(b) of the IBC.
Pradeep Kabra, the appellant, challenged the NCLT’s resolution plan adoption. Because the amount allocated for the appellant is less than what was allowed, the appellant said that the plan flagrantly violates the IBC’s laws, particularly section 30(2). It was also mentioned that the secured operating creditors received a larger amount under the settlement plan.
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The appellant ought to have been treated as secured operational creditor and ought to have been given the same treatment as was given to other secured creditors.. Reliance was placed on the Supreme Court judgment in State Tax Officer vs. Rainbow Papers Limited. (2023).
In contrast, the respondent argued that the appellant’s claim was handled as operational debt. Additionally, it was contended that the appellant’s compensation was consistent with the same treatment. Additionally, it was asserted that the Central Excise’s statutory requirements do not acknowledge the claims of such dues as secured dues.
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The tribunal noted that in the Supreme Court in Rainbow Papers Limited while interpreting section 48 of the Gujarat Value Added Tax Act held that the dues of the State Tax Officer were secured debt. The NCLAT in the Assistant Commissioner of Central Tax, CGST Division vs. Mr. Sreenivasa Rao Ravinuthala (2021) while interpreting section 11E of the Central Excise Act, 1944 held that on a bare perusal of this provision, it is clear that it carves out an exception to the provisions of the IBC therefore any claims arising out of the Central Excise Act will have to be dealt with as per the scheme of the IBC.
The bench of Justice Ashok Bhushan (Judicial Member), Mr. Barun Mita (Technical Member) and Mr. Arun Baroka (Technical Member) has held that the ‘Secured Interest’ as defined under the Code excludes charges created by Operation of law. Section 11E of the Central Excise Act, 1944 is distinct from the provisions of ‘Gujarat VAT Act, 2003’.
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When dismissing the appeal, it was decided that the adjudicating authority had not erred in considering the appellant’s claim as an operational debt, and that the operational creditor was entitled to payment under section 30(2)(b) of the IBC.
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