2019 (3) TMI 1238 - AT - Insolvency and Bankruptcy

Approval of Resolution Plan - corporate insolvency proceeding - grievance of the Appellant is that the Adjudicating Authority has granted huge Income Tax benefits to the 2nd Respondent- Synergies Castings Ltd. without impleading the Appellant department as a Respondent to the said proceedings - HELD THAT - From the plain reading of sub-section (21) of Section 5, we find that there is no ambiguity in the said provision and the legislature has not used the word and but chose the word or between goods or services including employment and before a debt in respect of the payment of dues arising under any law for the time being in force and payable to the Central Government, and State Government or any local authority . Operational Debt in normal course means a debt arising during the operation of the Company ( Corporate Debtor ). The goods and services including employment are required to keep the Company ( Corporate Debtor ) operational as a going concern. If the Company ( Corporate Debtor ) is operational and remains a going concern, only in such case, the statutory liability, such as payment of Income Tax, Value Added Tax etc., will arise. As the Income Tax , Value Added Tax and other statutory dues arising out of the existing law, arises when the Company is operational, we hold such statutory dues has direct nexus with operation of the Company. For the said reason also, we hold that all statutory dues including Income Tax , Value Added Tax etc. come within the meaning of Operational Debt . For the said very reason, we also hold that Income Tax Department of the Central Government and the Sales Tax Department(s) of the State Government and local authority , who are entitled for dues arising out of the existing law are Operational Creditor within the meaning of Section 5(20) of the I&B Code . No interference is called for against the impugned order challenged in Company Appeal In the other appeal, the statutory dues have been treated as Operational Debt and equated them with similarly situated Operational Creditors , we find no reason to interfere with the impugned order(s) challenged in Company Appeal

Issues Involved:

1. Whether 'Income Tax', 'Value Added Tax' or other statutory dues, such as 'Municipal Tax', 'Excise Duty', etc., come within the meaning of 'Operational Debt'?
2. Whether the Central Government, the State Government, or the legal authority having statutory claims, come within the meaning of 'Operational Creditors'?

Issue-wise Detailed Analysis:

1. Definition of 'Operational Debt':

The primary issue revolves around whether statutory dues like Income Tax, Value Added Tax (VAT), and other similar dues fall under the definition of 'Operational Debt' as per the Insolvency and Bankruptcy Code, 2016 (I&B Code). Section 5(21) of the I&B Code defines 'Operational Debt' as "a claim in respect of the provision of goods or services including employment or a debt in respect of the payment of dues arising under any law for the time being in force and payable to the Central Government, any State Government or any local authority."

The Tribunal observed that the word 'or' in the definition is disjunctive, meaning that statutory dues arising under any law and payable to the government or local authorities are included within the scope of 'Operational Debt'. This interpretation aligns with the plain reading of the statute, which does not present any ambiguity.

The Tribunal also noted that 'Operational Debt' generally refers to debts arising during the operation of a company. Since statutory liabilities like Income Tax and VAT arise when a company is operational, these dues have a direct nexus with the operation of the company. Therefore, statutory dues should be considered 'Operational Debt'.

2. Definition of 'Operational Creditors':

The second issue concerns whether entities like the Income Tax Department, Sales Tax Department, and other statutory authorities qualify as 'Operational Creditors'. Section 5(20) of the I&B Code defines 'Operational Creditor' as "a person to whom an operational debt is owed and includes any person to whom such debt has been legally assigned or transferred."

Given the Tribunal's interpretation that statutory dues fall under 'Operational Debt', it follows that the entities entitled to these dues, such as the Income Tax Department and Sales Tax Departments, are 'Operational Creditors'. This interpretation ensures that these statutory authorities are recognized within the insolvency resolution process, and their claims are addressed accordingly.

Case-Specific Observations:

- In Company Appeal (AT) (Insolvency) No. 205 of 2017, the Tribunal noted that the Resolution Plan included provisions for the full payment of outstanding statutory dues in a staggered manner over three years. This plan was acceptable, and no interference was warranted against the impugned order dated 2nd August 2017.

- In Company Appeal (AT) (Insolvency) Nos. 309, 559, 671 & 759 of 2018, the statutory dues were treated as 'Operational Debt' and equated with similarly situated 'Operational Creditors'. The Tribunal found no reason to interfere with the impugned orders in these appeals.

Conclusion:

The Tribunal concluded that statutory dues, including Income Tax and VAT, come within the meaning of 'Operational Debt', and the respective statutory authorities are 'Operational Creditors'. All appeals were disposed of with these observations, and no costs were awarded.

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