1. SC Rejects Review Petition on Rainbow Papers Decision – Waterfall Mechanism under Section 53 IBC

Case: Sanjay Kumar Agarwal v. State Tax Officer [2023] 156 taxmann.com 69 (SC)

Introduction

The Supreme Court revisited the much-debated Rainbow Papers decision concerning the interpretation of the waterfall mechanism under Section 53 of the Insolvency and Bankruptcy Code, 2016 (IBC). The review petition questioned the priority of statutory dues in liquidation.

Facts

• In liquidation proceedings of a Corporate Debtor, the Sales Tax Officer sought payment of dues under the Gujarat Value Added Tax, 2003, claiming a first charge over liquidation assets.
• The NCLT rejected the plea, holding that tax dues could not override the priority structure under IBC.
• The NCLAT upheld this ruling.
• The Supreme Court, however, in the original Rainbow Papers ruling, set aside NCLT/NCLAT orders and recognized government dues as secured creditors if law created a charge.
• Thereafter, a review petition was filed by the liquidator.

Issues

• Whether the review petition was maintainable under Article 137 of the Constitution against the Supreme Court’s earlier ruling.
• Whether tax authorities’ claims should override IBC waterfall provisions.

Ruling

• The Court reiterated that its power of review flows from Article 137 of the Constitution, subject to parliamentary law and rules framed under Article 145.
• In civil proceedings, review is permissible only on grounds under Order XLVII Rule 1 CPC.
• In criminal proceedings, review lies only on an error apparent on the face of the record.
• The Court emphasized that even a third party to proceedings, if aggrieved, may seek review, but in the instant case, no valid ground existed.
• Hence, the review petition was dismissed.

Significance

This decision maintains the binding nature of Rainbow Papers, reinforcing that statutory dues can enjoy priority akin to secured creditors where law creates a first charge. It also reiterates the narrow scope of review jurisdiction of the Supreme Court.

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2. SC Dismisses SLP against HC Order Restraining Go Air from Using Leased Aircraft

Case: Go Airlines India Ltd. v. SMBC Aviation Capital Ltd. [2023] 153 taxmann.com 261 (SC)

Introduction

The dispute concerned the rights of aircraft lessors during insolvency proceedings under IBC, 2016, and the jurisdiction of High Courts under Article 226 vis-à-vis NCLT proceedings.

Facts

• Go Airlines defaulted on lease rent payments, prompting initiation of CIRP under Section 10 of IBC.
• Lessors terminated lease agreements and applied to DGCA for de-registration of aircraft under Rule 30(7) of Aircraft Rules, 1937.
• NCLT admitted CIRP, but DGCA kept deregistration applications in abeyance.
• Lessors approached the High Court under Article 226, seeking deregistration.
• The Single Judge passed an interim order restraining Go Air and its IRP from removing/replacing parts from aircraft until writ adjudication.
• Go Air appealed, arguing that CoC had approved its revival plan and interim restrictions would hinder restart of airline operations.

Issues

• Whether the High Court could entertain lessors’ writ petitions during pendency of CIRP.
• Whether SC should interfere with interim orders of the High Court under Article 136.

Ruling

• The Supreme Court declined interference, noting that the writ proceedings under Article 226 were already pending before the High Court and being heard day-to-day.
• Jurisdictional issues raised by Go Air could be adequately addressed before the High Court.
• Hence, the Special Leave Petition (SLP) was dismissed.

Significance

The ruling underscores judicial discipline by the Supreme Court in avoiding parallel adjudication when High Courts are seized of constitutional matters. It also highlights the interplay between IBC and aviation leasing laws, particularly concerning ownership rights of lessors vis-à-vis insolvency moratorium.

Conclusion

Both rulings reiterate the Supreme Court’s approach to maintaining consistency in insolvency jurisprudence:

1. In Rainbow Papers (Review), the Court restricted the scope of review and reaffirmed statutory dues’ treatment under IBC.
2. In Go Air v. SMBC Aviation, the Court respected High Court jurisdiction under Article 226, while leaving open questions of aircraft lessors’ rights during CIRP.

Together, these decisions highlight the Court’s attempt to balance insolvency law objectives with competing statutory claims, while also clarifying jurisdictional boundaries between IBC forums and constitutional courts.