Section 238 of the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as the “Code”) provides that the provisions of the Code shall have an overriding effect on any other legislation in cases of a conflict. Several judgments delivered by different courts/ tribunals have relied on Section 238 of the Code and held that the code shall prevail over other laws in cases of conflict between the two.
In the recent judgment of the National Company Law Tribunal (“NCLT”), Ahmadabad dated 02.01.2020, in the case of Ritesh Prakash Adatiya v. Deputy Commissioner of State Tax, (Enforcement) Division-8, Surat the Hon’ble NCLT has observed that the Code will have an overriding effect over the Gujarat GST Act, 2017 and CGST Act, 2017 in light of the provision provided under Section 238. The NCLT has even relied on various judgments of the Hon’ble Supreme Court as well as other tribunals.
The brief facts of the case are as follows:
1. On a petition being filed by M/s. Balaji Metal & Alloys, the Operational Creditor under Section 9 of the Code, Corporate Insolvency Resolution Process (“CIPR”) was admitted against Electra Accumulators Ltd., being the Corporate Debtor vide order dated 16.09.2019. In furtherance, Mr. Ritesh Prakash Adatiya was appointed as Interim Resolution Professional (“IRP”) of the Corporate Debtor.
2. The Corporate Debtor is registered under the GST Act, 2017 bearing GSTIN No. 24AACCE3088M1ZF. That the Department of Goods and Service Tax, through the Office of Deputy Commissioner of State Tax issued notices dated 07.02.2019 and 31.12.2018 to the Corporate Debtor under Section 83 and attached the properties of the Corporate debtor in the form of ‘finished goods’, ‘raw materials’ and machineries kept at their factories. Further a restriction on the disposal of inventory and machinery was also placed.
3. That the IRP has sent intimation to the GST Department informing them about the commencement of CIRP of the Corporate debtor and declaration of moratorium under Section 14 of the Code.
4. The IRP also stated that the working of the corporate debtor has come to a standstill and the IRP would not be in the position to manage the operations of the Corporate debtor as a going concern under Section 20 of the Code. Moreover, under Section 25 of the Code, it was also the duty of the IRP to take control and custody of the assets of the corporate debtor on which it possessed ownership rights.
The NCLT categorically observed that section 238 of the Code contains an overriding provision and in terms of the said section, in case of a conflict, the Code shall prevail over any other law. Further, the NCLT discussed various judgments inter alia Innoventive Industries and Sterling SEZ Infrastructure Ltd., wherein it was held that the Code shall prevail over other laws in case of any inconsistency.In light of the section 238 of the Code and above judgments the NCLT was of the view the code would override the provisions of the Gujarat GST Act, 2017 and CGST Act, 2017. Further, the Deputy Commissioner was directed to release the assets of the corporate debtor, thus enabling the IRP to collate the claims from the creditors and complete the CIRP in a time bound manner.
Here it is pertinent to note that similar view was taken by NCLT, Chennai Bench in the case of T. R. Ravichandran, RP Vs Asst. Commissioner (ST) (NCLT) bearing case no. MA/1298/2019 wherein the Tribunal,in the light of Section 238,observed that the Code shall have an overriding effect on all other laws (including GST law) which are in contravention. The Hon’ble Tribunal further, held that for the past dues, the revenue authorities fall within the ambit of ‘operational creditor’ and being an operational creditor, they are entitled to file a claim with the RP rather than insisting upon him to make payment of past tax dues.