PAYMENT OF SUBSIDY DIRECTLY TO THE GOVERNMENT IN A CORPORATE INSOLVENCY RESOLUTION PROCESS – TENABLE?

[Mr. M. GOVINDARAJAN]

In ‘Topworth Urja & Metals Limited through its RP Avil Menezes v. Directorate of Industries, Government of Maharashtra’ - 2024 (9) TMI 248 – NCLAT, New Delhi Branch, corporate insolvency resolution process was initiated against the Corporate Debtor. The same was admitted by the Adjudicating Authority on 12.08.2022. The Directorate of Industries, Government of Maharashtra granted subsidy to the corporate debtor as detailed below-

• 2017 – 18- Rs. 15.25 crore (90% of subsidy)
• 2018 - 19 – Rs. 24.17 crore (75% of subsidy)
• 2019 – 20 – Rs. 22.34 crore (75% of subsidy)

All the above three subsidies were sanctioned by the Directorate on 27.12.2021.

The Corporate Debtor, vide its letter dated 28.02.2022 requested the Directorate to release the above said amount and also advised to pay the said amount to the following departments as indicated against each department-

• District Mining Officer – Rs. 32.93 crore
• GST department – Rs. 22 crore
• Sales Tax Department – Rs. 1.24 crore;
• Provident Fund Department – Rs. 1.61 crore;
• Income Tax Department (TDS) – Rs. 1.99 crore;
• District Mining Officer – Rs. 7.04 crore.

The Resolution Professional filed an application before the Adjudicating Authority praying for release of the subsidy amount to the tune of Rs.61.76 crore sanctioned by the respondent by way of subsidy for the mega project of the corporate debtor. The Adjudicating Authority issued notices to the Department. But there was no reply from the respondent and they did not represent before the Adjudicating Authority.

The Adjudicating Authority directed the respondent, in reference to the letter of the Corporate Debtor to the respondent, to pay the said amount to the various departments stated above within 30 days of the order on 07.03.2024.

The Resolution Professional filed an appeal against the said order of Adjudicating Authority before the National Company Law Appellate Tribunal, New Delhi Bench. The appellant contended that the that the letter relied by the Adjudicating Authority is written by erstwhile management and after initiation of the CIRP. Therefore, the said amount has to be paid to the Corporate Debtor and the claims of all authorities have to be satisfied as per the Resolution Plan which has already been approved by the Committee of Creditors. The said Government authorities, to whom the subsidy amount has been directed to pay by the Adjudicating Authority, have filed their claims.

In the present appeal also, the respondent did not appear before the Appellate Tribunal and did not file reply to the notice. The Appellate Tribunal observed that CIRP was initiated on 12.08.2022. The erstwhile management of the corporate debtor has written the letter dated 28.02.2022 requesting the respondent to pay the dues of the corporate debtor to the various department as sited above by subsidy grant. The said letter was written after the initiation of CIRP. The NCLAT observed that all amount which is payable to the Corporate Debtor has to be given in the kitty of the Corporate Debtor and disbursement of the amount has to take place as per the Resolution Plan which has been approved by the CoC as submitted by the Counsel for the Appellant.

The NCLAT partly allowed the appeal. It set aside the order of Adjudicating Authority directing the Principal Secretary, Directorate of Industries, Government of Maharashtra, to pay the amount of investment subsidy within 30 days in accordance with the disbursal advice to the Government Authorities. The NCLAT directed to pay the said amount into the Corporate Debtor account. It would be open for the Resolution Professional to take such further steps as may be required in accordance with law.