5 review petitions fail: 'No error' in giving state priority over banks in insolvency

Banks, a liquidator, and a resolution professional all tried to overturn a Supreme Court judgment. The Court's response: you're asking for an appeal, not a review.

Five separate petitions, stacked in a neat pile on the bench, landed before the Supreme Court in October 2023. Each asked the same thing: undo the judgment dated 06.09.2022 that gave the Gujarat state government priority over banks in the insolvency of Rainbow Papers Limited. Each was dismissed. The air in the courtroom carried the weight of finality — a review is not a second chance to argue a case you lost. The judge's finger traced the line of Section 53 as the order was read aloud.

When the state tax officer came knocking

Rainbow Papers Limited was in trouble. The company had entered insolvency proceedings — a legal process where a financially distressed company's assets are collected and distributed to creditors under the supervision of a professional. Banks, as financial creditors, expected to be first in line for repayment. The State Tax Officer from Gujarat had a different idea.

The officer argued that under Section 48 of the Gujarat Value Added Tax Act, 2003, the state government had a "first charge" on the company's property for unpaid tax dues. This meant the state was a secured creditor — a lender with a legal claim backed by specific assets — and should get priority. The lower tribunals disagreed. The National Company Law Tribunal (NCLT) in Ahmedabad and the National Company Law Appellate Tribunal (NCLAT), on 19 December 2019, both said the Insolvency and Bankruptcy Code (IBC) overrides state tax laws. The state's claim was rejected. The tribunal's order felt like a door slamming shut on the tax officer, the file thudding closed on the desk.

The 2022 judgment that changed the game

The State Tax Officer appealed to the Supreme Court. In the judgment of 06.09.2022 — delivered in Civil Appeal No. 1661/2020 and Civil Appeal No. 2568/2020 — a bench reversed the tribunals' decisions. The Court held that the state was indeed a secured creditor under Section 48 of the Gujarat VAT Act, and that the definition of "secured creditor" under Section 3(30) of the IBC (the section that lists who qualifies as a secured creditor under insolvency law) did not exclude government authorities. Section 48 of the Gujarat VAT Act, the Court said, was not inconsistent with Section 53 of the IBC (the "waterfall mechanism" — the legal pecking order that decides which creditors get paid first from a company's assets during liquidation). The text of Section 53 lay open on the bench, its provisions examined and weighed, the pages slightly worn from handling.

Banks and other financial creditors, who had assumed they would be at the top of the payment queue, now had to share space with the state tax department.

Five petitioners, one argument

The affected parties — the State Bank of India, Indian Overseas Bank, the liquidator (the professional managing the company's asset sale), and the resolution professional (the person running the company during insolvency) — filed review petitions. A review petition is a limited legal remedy: it asks the same court to reconsider its own judgment, but only if there is an "error apparent on the face of the record" — a clear mistake visible without fresh evidence or re-argument.

Their central argument: the 2022 judgment had missed the waterfall mechanism under Section 53 of the IBC. They pointed to observations made by another two-judge bench in a later case called Paschim Anchal Vidyut Vitran Nigam Ltd. v. Raman Ispat (2023). That bench, they claimed, had suggested the 2022 judgment was wrong. Therefore, the Supreme Court should review and correct its earlier decision. The stack of five petitions, bound in blue covers, sat on the bench — each one a variation of the same plea.

Why the Court said no

Justice A.S. Bopanna and Justice Bela M. Trivedi were clear: none of the petitioners had shown an error apparent on the face of the record. The 2022 judgment had, in fact, expressly considered Section 53 and the waterfall mechanism. The Court had reproduced the statutory provisions and analysed them. There was no oversight — the pages of the judgment showed the careful reading, each line marked and considered.

Then came the more important point. A coordinate bench — a bench of equal authority — cannot overturn or undermine another coordinate bench's judgment. If a later bench disagrees with an earlier one, the proper course is to refer the matter to a larger bench, not to treat the later observations as grounds for review. "Observations by a coordinate bench cannot ground a review," the Court held. The courtroom fell silent as the order was read, the words hanging in the still air.

The review jurisdiction, the Court reminded, is not a disguised appeal. It is confined to correcting errors that are obvious on the face of the judgment itself. A subsequent decision by another bench does not create such an error.

The Court also cited a line of precedents reinforcing the narrow scope of review jurisdiction: Union of India v. Nareshkumar Badrikumar Jagad & Others — (2019) 18 SCC 586; M/s. Northern India Caterers (India) Ltd. v. Lt. Governor of Delhi — (1980) 2 SCC 167; Sajjan Singh & Ors. v. State of Rajasthan & Ors. — AIR 1965 SC 845; Parson Devi & Others v. Sumitri Devi & Others — (1997) 8 SCC 715; Shanti Conductors Pvt. Ltd. v. Assam State Electricity Board & Others — (2020) 2 SCC 677; Shri Ram Sahu (Dead) Through LRs & Others v. Vinod Kumar Rawat & Others — (2021) 13 SCC 1; Arun Dev Upadhyaya v. Integrated Sales Service Limited & Another — R.P.(C) Nos. 1273-1274/2021 in CA Nos. 8345-8346/2018; and Beghar Foundation v. Justice K.S. Puttaswamy (Retd.) & Others — (2021) 3 SCC 1. Each precedent reinforced the same principle: review is not appeal.

What the law says about reviews

The power to review its own judgments comes from Article 137 of the Constitution (the provision that allows the Supreme Court to reconsider its own decisions). The procedure is governed by Order XLVII of the Code of Civil Procedure, 1908, and the Supreme Court Rules, 2013. The standard is high: the petitioner must show either a mistake visible on the record, new evidence that could not have been produced earlier, or an error of law that makes the judgment unsustainable.

None of these were present. The petitioners were effectively asking the Court to hear the case again and reach a different conclusion. That is what an appeal does — not a review. The bench's reasoning was methodical: first, no error apparent on the face of the record was demonstrated; second, the impugned judgment had expressly considered Section 53 and other IBC provisions; third, observations by a coordinate bench cannot ground a review; and fourth, the petitioners were effectively seeking an appeal in disguise.

Why this matters for insolvency practice

For insolvency professionals and financial creditors, the message is clear. The state tax department's claim as a secured creditor is now settled law — at least until a larger bench says otherwise. Any resolution plan (a proposal to revive the company or sell its assets) must account for state tax dues alongside bank debts. Ignoring the state's priority could lead to the plan being rejected.

THE PLAY: When drafting a resolution plan, treat state tax dues as secured creditor claims — the waterfall mechanism under Section 53 does not override a statutory first charge created by state law.

The Court ended where it began: "All the Review Petitions are dismissed." The five petitions, once stacked with hope, now carried the weight of a final answer — no error, no review, no second chance. The bench rose, and the courtroom stirred back to life, the silence broken by the shuffle of papers and the closing of files.