9911796707
TMI Blog2020 (12) TMI 914X X X X Extracts X X X X X X X X Extracts X X X X ..... olution plan of the petitioner under section 31 of the Insolvency and Bankruptcy Code, 2016; (III) For a direction to the respondent not to appropriate an amount of Rs. 6,23,82,214.00 already recovered following the order in original dated 22.07.2020; (IV) For a direction to the respondent to refund an amount of Rs. 5,88,27,531.45 to the petitioner. 3. Case of the petitioner is that it is a company incorporated under the Companies Act, 1956 having its registered office at P. D'mello Road, Mumbai. Having been incorporated on 16.01.2010, petitioner was engaged in the business of providing cranes for hire/lease to other companies involved in infrastructure business. It is stated that as had happened with many companies engaged in infrastructure business, petitioner also underwent a period of great financial stress which resulted in failure to repay dues of various creditors. 4. One of the unsecured creditors of the petitioner Shri. Sanjay Talakshi Mamaniya filed a petition under section 7 of the Insolvency and Bankruptcy Code, 2016 (briefly "the Code" hereinafter). The said petition was filed before the National Company Law Tribunal, Mumbai Bench (briefly "the Tribunal" hereinaf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plication before the Tribunal under section 30(1) and (6) of the Code for sanction of the resolution plan in accordance with section 31 of the Code. The misc. application was registered as MA No.1240 of 2019. It is stated that the application was heard from time to time and was finally allowed by the Tribunal vide order dated 30.08.2019. In the said order reference was made to the service tax dues of the petitioner, particularly in the backdrop of two show cause cum demand notices dated 18.04.2015 and 13.02.2017 (01.02.2017) issued to the petitioner raising demand of service tax, interest, late fee and penalty, totalling Rs. 1929.85 lakhs. Tribunal noted that the claim raised on account of service tax dues fell under the definition of operational creditors and held that the dues should be settled at par with other operational creditors under the resolution plan. It was pointed out that the resolution plan provided for settlement of dues of operational creditors at the rate of 5% of the principal amount and waiver of interest, penal interest and penalty. Noting that petitioner had contested the demand raised, it was directed that in the interest of safeguarding sustainability of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed at Rs. 7,02,20,725.00. As stated above, respondent had already recovered an amount of Rs. 6,23,82,214.00. In the impugned order respondent had recorded the statement of the petitioner that petitioner is required to pay 5% of the admitted liability and thereafter 5% of the crystallized amount upon adjudication of the contested liability in terms of the resolution plan as approved by the committee of creditors and sanctioned by the Tribunal. However, there appears to be no discussion of the effect of the Tribunal's order dated 30.08.2019 on the demand raised by the respondent. However, it is seen that a copy of the impugned order dated 22.07.2020 was forwarded to the resolution professional Shri. Naren Sheth. 13. With the grievance that the impugned order in original is exfacie illegal and in complete violation of the order of the Tribunal dated 30.08.2019, present writ petition has been filed seeking the reliefs as indicated above. 14. Respondent has filed two affidavits, both through Shri. Rajesh Sanan, Commissioner of CGST and Central Excise, Mumbai Central. In the first affidavit filed on 17.08.2020 it is stated that respondent has passed the order in original dated 22.07.20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he appropriate authority. 15.2. In so far the question of refund is concerned, it is contended that petitioner has not applied for any refund under the provisions of the Finance Act, 1994 to the concerned jurisdictional authority. Respondent therefore submits that there is no merit in the writ petition which should be dismissed. 16. Mr. Arsiwala, learned counsel for the petitioner has elaborately referred to the scheme of the Code and submits that the Code is a major departure from the erstwhile legal framework applicable to liquidation of insolvency companies. Under the Code the focus is on revival of an insolvent company rather than liquidating it. It is in that context the corporate insolvency resolution process has to be understood and appreciated. Liquidation of the corporate debtor is ordered only upon failure of the corporate insolvency resolution process. Learned counsel has explained the procedural aspect of corporate insolvency resolution process and submits that a resolution plan must have the approval of the committee of creditors by a voting share of 66 percent in its favour. In the present case the resolution plan submitted by the resolution applicant had the approv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ization. All authorities are bound by the order of the Tribunal under the Code. He therefore submits that respondent cannot retain the amount of Rs. 6,23,82,214.00 collected from the petitioner under section 87 of Chapter V of the Finance Act, 1994. All that respondent can retain is 5% of the principal adjudicated amount i.e. Rs. 35,11,036.00 and thereafter refund the balance amount to the petitioner. Otherwise it would amount to unjust enrichment of the respondent holding money of the petitioner beyond what is permissible under the law. In support of his submissions, learned counsel for the petitioner has placed reliance on a number of decisions. He has also filed written submissions. 17. Per contra, Mr. Jetly, learned senior counsel for the respondent submits that there is no illegality in the impugned order in original. Respondent had rightly passed the said order adjudicating the service tax dues of the petitioner pursuant to three show-cause notices dated 18.04.2015, 01.02.2017 (13.02.2017) and 19.04.2018. Following the said order service tax dues of the petitioner has crystallized which is Rs. 7,02,20,725.00. Respondent has the power to make recovery under section 87 of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o single law in India dealing with insolvency and bankruptcy. There were several laws dealing with different aspects and providing for creation of multiple fora. Existing framework for insolvency and bankruptcy was found to be inadequate and ineffective resulting in undue delays in resolution. Therefore, the said legislation was proposed. Objective of the Code is to consolidate and amend the laws relating to reorganization and insolvency resolution of corporate persons, partnership firms and individuals in a time bound manner for maximization of value of assets of such persons, to promote entrepreneurship, availability of credit and balance the interests of all the stakeholders including alteration in the priority of payment of government dues and to establish an Insolvency and Bankruptcy Fund and matters connected therewith or incidental thereto. It was hoped that an effective legal framework for timely resolution of insolvency and bankruptcy would support development of credit markets and encourage entrepreneurship. It would also improve Ease of Doing Business and facilitate more investments leading to higher economic growth and development. The Code seeks to provide the National ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are looked after as the corporate debtor itself becomes a beneficiary of the resolution scheme workers are paid, the creditors in the long run will be repaid in full and shareholders/investors are able to maximise their investments. Timely resolution of a corporate debtor who is in the red by an effective legal framework would go a long way to support the development of credit markets. What is interesting to note is that the preamble does not in any manner refer to liquidation, which is only availed of as a last resort if there is either no resolution plan or the resolution plans submitted are not up to the mark. Even in liquidation, the liquidator can sell the business of the corporate debtor as a going concern. While observing as above, Supreme Court referred to its decision in Arcelor Mittal (India) (P) Ltd. Vs. Satish Kumar Gupta, (2019) 2 SCC 1. Reiterating the above, Supreme Court in Committee of Creditors of Essar Steel India Limited -Vs- Satish Kumar Gupta, 2019 SCC Online SC 1478, observed that the preamble of the Code speak of maximization of the value of assets of corporate debtors and balancing of the interest of all stakeholders. A key objective of the Code is to ensur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r 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. Section 5(25) defines "resolution applicant" to mean a person, who individually or jointly with any other person, submits a resolution plan to the resolution professional pursuant to the invitation made under section 25(2)(h). "Resolution plan" has been defined to mean a plan proposed by resolution applicant for insolvency resolution of the corporate debtor as a going concern in accordance with Part II [sub section (26) of section 5]. "Resolution professional" for the purpose of Part II has been defined under section 5 (27) to mean an insolvency professional appointed to conduct the corporate insolvency resolution process and includes an interim resolution professional. 25. Chapter II of Part II deals with corporate insolvency resolution process. Section 6 forming part of Chapter II says that where any corporate debtor commits a default, a financial creditor, an operational creditor or the corporate debtor itself may initiate corporate insolvency resolution process in respec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on professional. Sub section (1) says that the first meeting of the committee of creditors shall be held within seven days of the constitution of the committee of creditors and as per sub section (2) the committee of creditors may, in its first meeting, by a majority vote of not less than 66% of the voting share of the financial creditors, either resolve to appoint the interim resolution professional as the resolution professional or to replace the interim resolution professional by another interim resolution professional. The resolution professional so appointed shall conduct the entire corporate insolvency process and manage operations of the corporate debtor during the process period. Section 25 lays down the duties of resolution professional which includes inviting prospective resolution applicants to submit a resolution plan or plans. 28.1. Section 30 provides for submission of resolution plan. As per sub section (1) a resolution applicant may submit a resolution plan to the resolution professional. Under sub section (2) the resolution professional shall examine such resolution plan whereafter he shall present the same to the committee of creditors for its approval under sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on plan has provisions for its effective implementation. 30. Section 238 of the Code provides that provisions of the Code shall have overriding effect. Section 238 reads as under :- "238. Provisions of this Code to override other laws. - The provisions of this Code shall have effect, notwithstanding anything inconsistent therewith contained in any other law for the time in force or any instrument having effect by virtue of any such law." 31. From a conjoint reading of section 31(1) and section 238 of the Code, it is quite evident that the provisions of the Code shall have overriding effect. The non obstante clause in section 238 and the use of the expression "shall" in sub section (1) of section 31 makes it abundantly clear that a resolution plan approved by the committee of creditors and further approved (or sanctioned) by the adjudicating authority would be binding on all creditors including the Central Government, 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, such as authorities to whom statutory dues are owed. 32. Having broadly surveyed the relevant provisions of the Code, we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Against the said show-cause cum demand notice service tax department had filed its claim under various heads, such as, service tax, interest calculated upto 04.10.2017 etc. totalling Rs. 1754.04 lakhs. 34.2. The second show cause cum demand notice raised demand of Rs. 47.24 lakhs. Against this show-cause notice the service tax department had filed its claim under various heads including service tax and interest calculated upto 04.10.2017 etc. total amounting to Rs. 175.82 lakhs. It is stated that total demand raised by the service tax department under both the show-cause cum demand notices was Rs. 1929.85 lakhs. It is noted that adjudication of the show-cause cum demand notices were pending. Thereafter the resolution plan mentions as follows :- "The aforesaid claim falls under the definition of Operational Creditors and the said dues shall be settled at par with other Operational Creditors under this Resolution Plan. The Resolution plan provides for settlement of dues of Operational Creditors @ 5% of principal amount and waiver of interest, penal interest and penalties. Therefore, it is specifically provided that the Service Tax liability under both SCN dated 18.04.2015 of Rs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the resolution plan was approved by the committee of creditors with 90.93 percent of votes in its favour much in excess of the requirement of 66 percent. Thereafter the same was filed before the Tribunal by the resolution professional for approval/ sanction of the same. After discussing the salient features of the resolution plan, Tribunal by order dated 30.08.2019 sanctioned the same. In this connection reliance was placed on a decision of the Supreme Court in K. Sashidhar Vs. Indian Overseas Bank, 2019 SCC Online SC 257. Tribunal noted that adjudicating authority is not required to go into the merit or reasoning of the decision taken by the committee of creditors for approval or rejection of a resolution plan. The only benchmark which is required to be followed is as to whether the plan has been approved by the requisite percentage of voting of the committee of creditors or not. Commercial wisdom of the committee of creditors is not to be interfered with. In so far the instant case is concerned, Tribunal held that approval of the resolution plan by the committee of creditors is to be accepted by the adjudicating authority if 66% voting share approves the said plan. Tribunal ref ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an amount equivalent to 5% of the admitted liability. Regarding the amount contested by the petitioner, it was submitted that the final payable amount would be decided upon completion of the adjudication proceeding whereafter petitioner would be required to pay 5% of the crystallized amount with interest, penalty etc. being waived off. After hearing the matter, including granting personal hearing to Shri. Naren Sheth, the resolution professional, the adjudicating authority summarized the total demand against the petitioner covered by the three show-cause notices at Rs. 7,02,20,725.00. This slight reduction in the quantum of total amount was on account of adjustment for utilization of irregular cenvat credit. Initially the amount of cenvat credit availed of was Rs. 1,31,51,284.00. After deduction of Rs. 8,72,926.00 from the said amount on account of non-reversal of cenvat credit, the amount due under the said heading i.e. inadmissible cenvat credit became Rs. 1,22,78,358.00 which led to reduction of the total demand from Rs. 7,10,93,651.00 to Rs. 7,02,20,725.00. 37. While adjudication of the show-cause notices to arrive at the total service tax dues may be the requirement of law an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... site percentage of voting share, then as per section 30(6) of the Code, it is imperative for the resolution professional to submit the same to the adjudicating authority. On receipt of such a proposal, the adjudicating authority is required to satisfy itself that the resolution plan as approved by the committee of creditors meets the requirements of section 30(2). No more and no less. The legislature has not endowed the adjudicating authority with the jurisdiction or authority to analyze or evaluate the commercial decision of the committee of creditors. From the legislative history and the background in which the Code has been enacted, it is noticed that the commercial wisdom of the committee of creditors has been given paramount status without any judicial intervention for ensuring completion of the stated processes within the timelines prescribed by the Code. There is an intrinsic assumption that financial creditors are fully informed about the viability of the corporate debtor and feasibility of the proposed resolution plan. The opinion on the subject matter expressed by the financial creditors after due deliberations in the committee of creditors' meetings through voting, as pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er would be required to pay is 5% of Rs. 7,02,20,725.00. In so far the recovered amount i.e. Rs. 6,23,82,214.00 is concerned, the same is part of the total demand determined i.e. Rs. 7,02,20,725.00. After retaining 5% of Rs. 7,02,20,725.00, respondent would be duty bound to refund the balance amount to the petitioner which will not only be in terms of the resolution plan and thus in accordance with law but will also be a step in the right direction for revival of the petitioner which is the key objective of the Code. There is no question of retaining the said amount. Submissions made by Mr. Jetly that the amount already recovered should be allowed to be appropriated by the respondent and that petitioner should pay 5% of the balance of the principal dues i.e. 5% of Rs. 7,02,20,725.00 less Rs. 6,23,82,214.00 is without any substance and liable to be rejected. It is accordingly rejected. 40. It cannot be argued that the State having recovered certain money even though such recovery may be illegal or questionable cannot be compelled to refund the same. Such a contention is clearly untenable, notwithstanding the question as to whether it is a case of unjust enrichment or not. Once it i ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
