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TMI Blog2020 (4) TMI 269X X X X Extracts X X X X X X X X Extracts X X X X ..... ught under the umbrella of the resolution plan approved by the adjudicating officer which has been made binding on such governments and local authorities. The purpose of the IBC is salutary as it has been enacted to ensure that an industry under distress does not fade into oblivion and can be revived by virtue of the resolution plan. Once the offer of the resolution applicant is accepted and the resolution plan is approved by the appropriate authority, the same is binding on all concerned to whom the industry concern may be having statutory dues. No right of audience is given in the resolution proceedings to the operational creditors viz. the Central Govt. or the State Govt. as the case may be. The purpose of the statute is very clear that it intends to revive the dying industry by providing an opportunity to a resolution applicant to take over the same and begin the operation on a clean slate. For that purpose, the evaluation of all dues and liabilities as they exist on the date of finalization of the resolution plan have been left in the exclusive domain of the resolution professional with the approval of the COC. The courts are given an extremely limited power of judicial rev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd essential for disposal of the case are that a company named Binani Cement suffered huge losses and was unable to pay the debts to the Financial Creditor i.e. Bank of Baroda, which preferred an insolvency application being Company Petition (IB) No.359/KB/2017 under Section 7 of the Insolvency Bankruptcy Code 2016 before the National Company Law Tribunal, Kolkata Bench (hereinafter referred to as NCLT for brevity). A Corporate Insolvency Resolution Process (hereinafter to be referred to as CIRP for brevity) was initiated by the NCLT under the provisions of the IBC 2016. Shri Vijay Kumar V. Iyer was appointed as the Insolvency Resolution Professional and his appointment was affirmed by the Committee of Creditors (hereinafter to be referred to as COC for brevity) constituted under the provisions of IBC vide its meeting dated 22.8.2017. Acting under the provisions of the IBC, the Resolution Professional invited prospective resolution applicants to stake a bid for the company facing insolvency proceedings. The petitioner company was one of the resolution applicants in the Corporate Insolvency Resolution Process. After reviewing and comparing the resolution plans received, the CO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thdwara Cement Ltd. The resolution plan was fully implemented and payments in its terms were duly made to all the creditors including the statutory creditors. Despite the resolution plan having attained finality and having been executed, the respondents herein have raised numerous demands from the petitioner for the period from April 2012 to June 2017 and interest upto 25.7.2017. Having made the full and final payment as proposed by the resolution professional, the petitioner addressed a letter dated 26.11.2018 to the respondents informing them of the payment of dues as admitted by the CIRP and reminded them that all remaining claims and proceedings stood extinguished in terms of the resolution plan. Having failed to get any positive response from the respondents, the petitioner company has approached this Court through this writ petition under Article 226 of the Constitution of India seeking the relief referred to supra. Shri Mr.Ajay Vohra, Sr.Advocate assisted by Mr.Arnab Roy and Ms.Aditi Vaishnav for Mr.Lokesh Mathur, learned counsel for the petitioner company urged that the IBC is a special law, which has been ordained for the purpose of bringing out an industry from dist ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6 crore, without giving any opportunity of hearing to the department? (ii) Whether the Hon ble NCLAT was justified in approving the Resolution Plan, wherein interest and penalty has been paid till the date of admission of Insolvency process, whereas as per Central Excise and Service Tax Laws interest and penalty has to be paid upto the date of payment of duty? (iii) Whether the Hon ble NCLAT was justified in approving the Resolution plan in which as per - (a) Para 6.5.2.13 all litigations instituted against the Corporate debtor, initiated or arising and pending before the Transfer date shall stand withdrawn, without any further act, instrument or deed (b) Para 6.2.3.5(g) no amount shall be payable for any liability of the Corporate debtor towards tax, fee, interest or penalty for which the assessment in respect of applicable tax laws have not been completed . (c) Para 6.5.6 other than the discharge of the Resolution amount towards the liabilities of the financial creditors, the operational creditors; contingent liabilities and the CIRP costs, no other payment shall be made by the Corporate debtor for any liabilities of Corporate debtor for the peri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ution plan. [Emphasis supplied] As per the amended provision of Section 31 of the IBC, the approved resolution plan has been made binding on the corporate debtor, its employees, members and all creditors including the Central Govt., any State Government or any local authority to whom a debt in respect of the payment of dues arising under any law for the time being in force is owed. This Court was further apprised that while the amendment was being adopted in the upper house of the Parliament, Hon ble the Finance Minister with reference to the questions/issues raised by the Members of the Parliament, clarified the legislative intent behind the amendment in Section 31(1) of the IBC in the following terms: IBC has actually an overriding effect. For instance, you asked whether IBC will override SEBI. Section 238 provides that IBC will prevail in case of inconsistency between two laws. Actually, Indian courts will have to decide, in specific cases, depending upon the material before them, but, largely, yes, it is IBC. There is also this question about indemnity for successful resolution applicant. The amendment now is clearly making it binding on the Government. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the interim resolution professional, the Board of Directors of the corporate debtor standing suspended by law. Among the important duties of the interim resolution professional is the receiving and collating of all claims submitted by creditors and the constitution of a Committee of Creditors-see Section 18(1)(b) and (c) of the Code. Under Section 20 of the Code, the interim resolution professional is to make every endeavour to protect and preserve the value of the property of the corporate debtor and manage the operations of the corporate debtor as a going concern. 22. At the first meeting of the Committee of Creditors, which shall be held within 7 days of its constitution, the Committee, by majority vote of not less than 66% of the voting share of financial creditors, must immediately resolve to appoint the interim resolution professional as a resolution professional, or to replace the interim resolution professional by another resolution professional-see Section 22(1) and (2) of the Code. Under Section 23(1), the resolution professional shall conduct the entire CIRP and manage the operations of the corporate debtor during the same. Importantly, all meetings of the Commi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ditors containing the names of creditors along with the amounts claimed by them, the amounts admitted by him, and the security interest, if any, in respect of such claims, and constantly update the aforesaid list-see Regulation 13(1). 25. After receipt of the resolution plans in accordance with the Code and the Regulations, the resolution professional shall then provide the fair value and liquidation value to every member of the Committee of Creditors-see Regulation 35(2). Regulation 36 is important as it forms the basis for the submission of a resolution plan. The information memorandum, spoken of by this regulation, must contain the following: (a) assets and liabilities with such description, as on the insolvency commencement date, as are generally necessary for ascertaining their values. Explanation: Description includes the details such as date of acquisition, cost of acquisition, remaining useful life, identification number, depreciation charged, book value, and any other relevant details. (b) the latest annual financial statements; (c) audited financial statements of the corporate debtor for the last two financial years and provisional financia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ayment over financial creditors. (1A) A resolution plan shall include a statement as to how it has dealt with the interests of all stakeholders, including financial creditors and operational creditors, of the corporate debtor. (2) A resolution plan shall provide: (a)the term of the plan and its implementation schedule; (b) the management and control of the business of the corporate debtor during its term; and (c) adequate means for supervising its implementation. (3) A resolution plan shall demonstrate that- (a) it addresses the cause of default; (a) it is feasible and viable; (b)it has provisions for its effective implementation; (d) it has provisions for approvals required and the time line for the same; and (e) the resolution Applicant has the capability to implement the resolution plan. Role of the committee of creditors in the corporate resolution process 31. Since it is the commercial wisdom of the Committee of Creditors that is to decide on whether or not to rehabilitate the corporate debtor by means of acceptance of a particular resolution plan, the provisions of the Code and the Regulations outli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ution applicant. Nonetheless, Shri Saraswat was not in a position to dispute the fact that the SLP preferred by the department before Hon ble the Supreme Court covered all issues including the issue that the department was not heard by the COC. Shri Saraswat is also not in a position to dispute the fact that the amended Section 31 of the Act applies to the situation hand fully because the operational creditors have pertinently been included in the scope and ambit thereof. We have given our thoughtful consideration to the arguments advanced at the bar and have gone through the material available on record and the impugned notices. It cannot be gainsaid that the controversy at hand hours around the simple issue as to whether the resolution plan approved by the COC is binding on the department or not. In this regard, it is trite to note that as per the amended Section 31 of the IBC referred to supra, the Central Govt., State Govt. or any other local authority to whom, a debt in respect of payment of dues arising under any law for the time being in force are owed, have been brought under the umbrella of the resolution plan approved by the adjudicating officer which has been made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... negotiation with the prospective resolution applicant, as to how and in what manner the corporate resolution process is to take place. 44. The minimum value that is required to be paid to operational creditors under a resolution plan is set out Under Section 30(2)(b) of the Code as being the amount to be paid to such creditors in the event of a liquidation of the corporate debtor Under Section 53. The Insolvency Committee constituted by the Government in 2018 was tasked with studying the major issues that arise in the working of the Code and to recommend changes, if any, required to be made to the Code. The Insolvency Committee Report, 2018 (hereinafter referred to as The Committee Report, 2018 ), inter alia, deliberated upon the objections to Section 30(2)(b) of the Code, inasmuch as it provided for a minimum payment of a liquidation value to the operational creditors and nothing more, and concluded as follows: 18. VALUE GUARANTEED TO OPERATIONAL CREDITORS UNDER A RESOLUTION PLAN 18.1 Section 30(2)(b) of the Code requires the RP to ensure that every resolution plan provides for payment of at least the liquidation value to all operational creditors. Regulatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the resolution plan as they have the power to choke the corporate debtor by cutting off supplies. Illustratively, in the case of Synergies-Dooray Automative Ltd. (Company Appeal No. 123/2017, NCLT Hyderabad, Date of decision-02 August, 2017), the original resolution plan provided for payment to operational creditors above the liquidation value but contemplated that it would be made in a staggered manner after payment to financial creditors, easing the burden of the 30-day mandate provided under Regulation 38 of the CIRP Regulations. However, the same was modified by the NCLT and operational creditors were required to be paid prior in time, due to the quantum of debt and nature of the creditors. Similarly, the approved resolution plan in the case of Hotel Gaudavan Pvt. Ltd. (Company Appeal No. 37/2017, NCLT Principal Bench, Date of decision-13 December, 2017) provided for payment of all existing dues of the operational creditors without any write-off. The Committee felt that the interests of operational creditors must be protected, not by tinkering with what minimum must be guaranteed to them statutorily, but by improving the quality of resolution plans overall. This could be ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dom of the requisite majority of the Committee of Creditors which is to negotiate and accept a resolution plan, which may involve differential payment to different classes of creditors, together with negotiating with a prospective resolution Applicant for better or different terms which may also involve differences in distribution of amounts between different classes of creditors. 57. Indeed, by vesting the Committee of Creditors with the discretion of accepting resolution plans only with financial creditors, operational creditors having no vote, the Code itself differentiates between the two types of creditors for the reasons given above. Quite clearly, secured and unsecured financial creditors are differentiated when it comes to amounts to be paid under a resolution plan, together with what dissenting secured or unsecured financial creditors are to be paid. And, most importantly, operational creditors are separately viewed from these secured and unsecured financial creditors in S. No. 5 of paragraph 7 of statutory Form H. Thus, it can be seen that the Code and the Regulations, read as a whole, together with the observations of expert bodies and this Court's judgme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ul resolution Applicant cannot suddenly be faced with undecided claims after the resolution plan submitted by him has been accepted as this would amount to a hydra head popping up which would throw into uncertainty amounts payable by a prospective resolution Applicant who successfully take over the business of the corporate debtor. All claims must be submitted to and decided by the resolution professional so that a prospective resolution Applicant knows exactly what has to be paid in order that it may then take over and run the business of the corporate debtor. This the successful resolution Applicant does on a fresh slate, as has been pointed out by us hereinabove. For these reasons, the NCLAT judgment must also be set aside on this count. [Emphasis supplied] Considered in light of the ratio of the above judgment and the stance of Hon ble the Finance Minister before the upper house of the Parliament, it is clear that the financial creditors have to be given a precedence in the ratio of payments when the resolution plan is being finalized. It is the financial creditors who are given right to vote in the COC whereas, the operational creditors viz. Commercial Taxes Depa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .2018 (Annex.11), order dated 20.3.2019 (Annex.12), notice dated 6.3.2019 (Annex.13), notice dated 8.3.2019 (Annex.14), notice dated 29.3.2019 (Annex.15), notice dated 29.3.2019 (Annex.16), notice dated 10.4.2019 (Annex.18), order dated 9.4.2019 (Annex.19), two notices dated 11.6.2019 (Annex.20) and any further demands pending as on the date of finalization of the resolution plan issued/raised by the respondents Central Goods and Service Tax Department, Govt. of India are quashed and struck down. Before parting, we would like to express our serious reservation on the approach of the concerned Officers of the GST in persisting with the demands raised from the petitioner in gross ignorance of the pertinent statement made by Hon ble the Finance Minister before the Parliament (referred to supra) and the amendment brought around in the IBC. We are of the firm view that the authorities should have adopted a pragmatic approach and immediately withdrawn the demands rather than indulging in a totally frivolous litigation, thereby unnecessarily adding to the overflowing dockets of cases in the courts. The writ petition is allowed accordingly. No order as to costs. - - TaxTMI - T ..... X X X X Extracts X X X X X X X X Extracts X X X X
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