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TMI Blog2020 (12) TMI 914X X X X Extracts X X X X X X X X Extracts X X X X ..... ting 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 - The Code seeks to provide the National Company Law Tribunal and Debts Recovery Tribunal as the adjudicating authorities for resolution of insolvency, liquidation and bankruptcy. The Code separates commercial aspects of insolvency and bankruptcy proceedings from judicial aspects besides providing for an Insolvency and Bankruptcy Board of India for regulation of insolvency professionals etc.. Insolvency professionals will assist in completion of insolvency resolution, liquidation and bankruptcy proceed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. Thus, the resolution plan mentions that the claim of service tax dues falls under the definition of operational creditors. Such dues should be settled at par with other operational creditors under the resolution plan which provides for settlement of dues of operational creditors at the rate of 5% of the principal amount with waiver of interest, penal interest and penalties. The claim amounting to ₹ 1929.85 lakhs was being contested by the corporate debtor before the concerned authority and the amount of admitted claim could not be determined until the outcome of the said proceeding. Therefore, the said amount of ₹ 1929.85 lakhs was kept in abeyance. However, the amount t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oner 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 ₹ 7,02,20,725.00 less ₹ 6,23,82,214.00 is without any substance and liable to be rejected. There should be no hesitation to hold that principal service tax dues quantified by the respondent vide order in original dated 22.07.2020 has to be settled at the rate of 5%, in other words 5% of ₹ 7,02,20,725.00. The directions of the respondent for appropriation of the amount of ₹ 6,23,82,214.00 already recovered cannot be sustained. Respondent shall retain 5% of ₹ 7,02,20,725.00 from the above amount recovered and thereafter refund the balance amount to the petitioner. To that extent, impugned order in original dated 22.07.2020 is interfered with. Refund shall be made within a period of three months from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion and appointed Shri. Martin S. K. Golla as the interim resolution professional to initiate insolvency resolution process on the corporate debtor i.e. the petitioner. 5. The interim resolution professional made a public announcement on 17.10.2017drawing the attention of the creditors of the petitioner about the order dated 04.10.2017 passed by the Tribunal ordering commencement of corporate insolvency resolution process against the petitioner. Creditors were called upon to submit proof of their claims to the interim resolution professional. Be it stated that the said public announcement was made under Regulation 6 of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 (briefly the Regulations hereinafter). 6. It is stated that Shri. Aahad Karim Jagmagia, one of the creditors of the petitioner expressed interest in submitting resolution plan for revival of the petitioner. Eventually, Shri. Aahad Karim Jagmagia (referred to as the resolution applicant hereinafter) submitted a resolution plan seeking to take over the petitioner for the purpose of reviving it. 7. In the meanwhile, Tribunal passed order date ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any, that would crystalise would be settled at 5% of the amount of principal dues adjudicated by the appropriate appellate authority/tribunal and in case of interest, penal interest and penalty charged by the authority that should be waived. By the said order the resolution plan as was approved by the committee of creditors was sanctioned by the Tribunal. 10. It is stated that the respondent adjudicated upon three show cause cum demand notices dated 18.04.2015, 01.02.2017 (13.02.2017) and 19.04.2018. Personal hearing granted by the respondent was attended by the resolution professional. Petitioner contended before the respondent that all the claims for and against the petitioner pertaining to the period prior to commencement of the corporate insolvency resolution process have been adequately dealt with by the Tribunal in its order dated 30.08.2019. Copy of the said order was also furnished to the respondent. At a subsequent stage petitioner informed the respondent that against the demand raised i.e. ₹ 7,10,93,651.00, the liability which was contested by the petitioner stood at ₹ 2,92,47,370.00. Remaining amount of ₹ 4,18,46,281.00 was an admitted claim which w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alized show-cause notice dated 01.02.2017 and show-cause notice dated 19.04.2018. Referring to the Tribunal s order dated 30.08.2019 it is stated that Tribunal had noted that the claim amounting to ₹ 1929.85 lakhs was being contested by the corporate debtor before the authority and therefore the amount of admitted claim could not be determined until outcome of the adjudication proceeding. Therefore, the said amount of ₹ 1929.85 lakhs was kept in abeyance ; however the amount that would be crystallized upon adjudication would be settled at the appropriate time. Proceeding further it is mentioned that Tribunal had held that for safeguarding sustainability of the company and not to derail the same in the event of substantial claim made by the department, the liability that would crystalize would be settled at 5% of the amount of principal dues adjudicated by the appropriate appellate authority/tribunal and interest, penal interest and penalty charged by the said authority shall be waived. 14.1. Thus, Tribunal had kept in abeyance the claim of ₹ 1929.85 lakhs which was under contestation by the corporate debtor till finalization of adjudication proceeding. 14.2. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its favour. The resolution plan provided settlement of dues of operational creditors at the rate of 5% of the principal amount and waiver of interest, penal interest and penalties. 16.1. Petitioner was served with three show-cause notices. Out of the amount covered by the show-cause notices claim amount of ₹ 1929.85 lakhs was contested by the corporate debtor (petitioner). Since the amount of admitted claim could not be determined until outcome of the proceedings, the said amount of ₹ 1929.85 lakhs was kept in abeyance. Once adjudicated upon, it would be settled at the appropriate time. He submits that by the order dated 30.08.2019 Tribunal held that in the interest of safeguarding sustainability of the company (petitioner) so as not to derail the company in the event of substantial claim by the department the liability that would crystallize upon adjudication would be settled at 5% of the principal dues and interest, penal interest and penalty would be waived. Mr. Arsiwala submits that under section 31 of the Code the said order of the Tribunal is binding on all concerned including the respondent. 16.2. Adverting to the three show-cause notices and the impugned o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ingly, various recoveries were made which amounted to total of ₹ 6,23,82,214.00 which is part of the service tax dues of the petitioner. Therefore respondent has every right to appropriate the said amount. 17.1. On a query by the Court Mr. Jelty submits that the resolution plan and the order of the Tribunal dated 30.08.2019 have to be read and understood in a practical and pragmatic manner. If so understood, 5% of the principal amount would mean the crystallized dues less the amount already collected. It is from this adjusted amount that 5% is required to be calculated and realized. Therefore, there is no question of respondent making any refund to the petitioner. On the contrary, it is the petitioner who has to make payment of 5% of the adjusted amount (₹ 7,02,20,725.00 less ₹ 6,23,82,214.00). 17.2. Finally Mr. Jetly submits that the principle of unjust enrichment cannot be applied against the State. There cannot be any unjust enrichment by the State. He therefore submits that the writ petition filed by the petitioner is completely misplaced and is as such liable to be dismissed. 18. In his reply submission Mr. Arsiwala has drawn the attention of the Cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Company Law Tribunal and Debts Recovery Tribunal as the adjudicating authorities for resolution of insolvency, liquidation and bankruptcy. The Code separates commercial aspects of insolvency and bankruptcy proceedings from judicial aspects besides providing for an Insolvency and Bankruptcy Board of India for regulation of insolvency professionals etc.. Insolvency professionals will assist in completion of insolvency resolution, liquidation and bankruptcy proceedings envisaged in the Code. 21.1. From the above, it is evident that focus of the Code is resolution of insolvency and bankruptcy. In other words the thrust is for revival of such corporate persons, partnership firms and individuals facing insolvency and bankruptcy rather than liquidation. 22. Preamble to the Code says that it is an act 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 order of priority of payment of governme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Code is to ensure that the corporate debtor keeps operating as a going concern during the insolvency resolution process. 23. Section 3 deals with definitions of words or expressions used in the Code. Sub section (6) of section 3 defines claim to mean amongst others a right to payment, whether or not such right is reduced to judgment, fixed, disputed, undisputed, legal, equitable, secured or unsecured. It also means right to remedy for breach of contract, if such breach gives rise to a right to payment. Creditor is defined under section 3(10) to mean any person to whom a debt is owed and includes a financial creditor, an operational creditor, a secured creditor, an unsecured creditor and a decree-holder. Likewise, debt is defined under section 3(11) to mean a liability or obligation in respect of a claim which is due from any person and includes a financial debt and an operational debt. Insolvency professional has been defined under sub section (19) of section 3 to mean a person enrolled under section 206 with an insolvency professional agency as its member and registered with the Insolvency and Bankruptcy Board of India as an insolvency professional under section 207. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ution process in respect of such corporate debtor. While section 7 deals with initiation of corporate insolvency resolution process by financial creditor, section 9 deals with initiation of such a process by operational creditor. On the other hand section 10 deals with initiation of corporate insolvency resolution process by the corporate debtor itself. Whatever be the mode of initiation of corporate insolvency resolution process, the procedure prescribed under section 13 would be equally applicable. As per sub section (1) the adjudicating authority, after admission of the application under section 7 or section 9 or section 10 shall by an order declare a moratorium, cause a public announcement of the initiation of corporate insolvency resolution process and call for submission of claims under section 15 and appoint an interim resolution professional. As per section 14(1), on and from the insolvency commencement date the adjudicating authority shall by an order declare moratorium prohibiting institution or continuation of suits or proceedings against the corporate debtor including execution of any judgment and decree ; transferring, encumbering, alienating or disposing of any asset ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ors for its approval under sub section (3). Sub section (4) provides for approval of the resolution plan by the committee of creditors by a vote of not less than 66% of voting share of the financial creditors, after considering its feasibility and viability etc. It shall also consider the manner of distribution proposed, order of priority amongst creditors etc. Once the resolution plan is approved by the committee of creditors, the resolution professional under sub section (6) shall submit the same to the adjudicating authority. 29. Section 31 deals with approval of resolution plan. Sub section (1) thereof is relevant and the same is extracted hereunder :- 31. Approval of resolution plan. - (1) If the Adjudicating Authority is satisfied that the resolution plan as approved by the committee of creditors under sub-section (4) of section 30 meets the requirements as referred to in sub-section (2) of section 30, it shall by order approve the resolution plan which shall be binding on the corporate debtor and its employees, members, creditors, including the Central Government, any State Government or any local authority to whom a debt in respect of the payment of dues arising ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g broadly surveyed the relevant provisions of the Code, we may now deal with the resolution plan as approved by the committee of creditors and the order of the adjudicating authority (Tribunal) dated 30.08.2019. 33. It may be mentioned that the respondent herein as operational creditor had submitted proof of claim against the petitioner before the resolution professional on 19.03.2018 in respect of the corporate insolvency resolution process. Referring to two show-cause notices dated 18.04.2015 and 13.02.2017 (01.02.2017), it was mentioned that the total amount of claim of the respondent against the petitioner was ₹ 19,29,85,804.00 which included applicable interest and penalty as on insolvency commencement date. It was however mentioned that the said claim was being contested by the corporate debtor and was pending. 34. The resolution plan deals with various aspects including dues of operational creditors at clause 7.3 under the heading details of dues of operational creditors . Clause 7.3(ii) deals with other statutory dues including service tax payable. It is mentioned that claim amounting to ₹ 1929.86 lakhs was received from the service tax department. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. Therefore, it is specifically provided that the Service Tax liability under both SCN dated 18.04.2015 of ₹ 528 Lacs out of which a service tax liability ₹ 320.55 Lacs has been provided by GGS in its books of accounts as on cut-off date and the same has been already addressed and settled under the settlement of dues of Operational Creditors as per Clause No.11 of the Resolution Plan. The said claim amounting to ₹ 1929.85 Lacs are being contested by the Corporate Debtor before the Joint/Additional Commissioner and Commissioner, Mumbai Central GST Commissionerate and the amount of admitted claim cannot be determined until the outcome of the said proceedings. Hence, the said amount of ₹ 1929.85 Lacs has been kept in abeyance. However, the amount that will come to be adjudicated, if any, will be settled at the appropriate time. In the interest of safeguarding the sustainability of the Company and so as to not derail the company in the event of a substantial claim by the said departments, the liability, if any, that will crystalized will be settled at 5% of the amount of principal dues adjudicated by the appropriate appellate authorities/tribunals and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esolution plan by the committee of creditors is to be accepted by the adjudicating authority if 66% voting share approves the said plan. Tribunal referred to section 238 of the Code and held that provisions of the Code shall have effect notwithstanding anything inconsistent contained in any other law for the time being in force. Though the respective tax authorities would be at liberty to take such decision as per law but that should not be against the spirit or provisions of the Code. The resolution plan is binding on the corporate debtor and other stakeholders so that revival of the debtor company comes into force with immediate effect. 36. Having discussed and analyzed the resolution plan and the sanctioning order of the Tribunal, we may now advert to the order in original dated 22.07.2020 passed by the Commissioner of CGST and Central Excise, Mumbai Central. The said order in original was passed upon adjudication of three show-cause cum demand notices dated 18.04.2015, 01.02.2017 (13.02.2017) and 19.04.2018. It may be mentioned that even before issuance of the first show-cause cum demand notice dated 18.04.2015, respondent had initiated recovery proceedings under section 87( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l demand from ₹ 7,10,93,651.00 to ₹ 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 and in conformity with the resolution plan because only upon crystallization of the amount due, the amount that the petitioner would be liable to pay at the rate of 5% could be arrived at. However, what is disconcerting is the order of the respondent for appropriation of the amounts already realized/recovered from the bankers and debtors of the petitioner. 38. Though learned counsel for the petitioner has assailed recoveries made by the respondent by invoking the provisions of section 87(b)(i) of the Finance Act, 1994, the same may not detain us in view of what we have discussed above and on the basis of which the conclusions that may be reached. It is true that many High Courts of the country have held in unequivocal terms that exercise of power under section 87(b)(i) of the Finance Act, 1994 without determination of the amount payable by a person under section 73 thereof would amount to putting the cart before the horse. It has been held that the expression amount payable by a person appearin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lity 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 per voting shares, is a collective business decision. The legislature consciously has not provided any ground to challenge the commercial wisdom of the individual financial creditors or their collective decision before the adjudicating authority. That is made nonjusticiable. 38.3. This has been reiterated by the Supreme Court in Committee of Creditors of Essar Steel India Limited (supra), wherein the Supreme Court highlighted that what is important is that it is the commercial wisdom of the majority of creditors in the requisite percentage which is to determine through negotiation with the prospective resolution applicant as to how and in what manner the corporate resolution process is to take place. 38.4. Supreme Court in the said case further held that the Code provides for limited judicial review which can in no circumstance trespass upon a business decision of the majority of the committee of creditors. Examination by the adjudicating authority has to be within the four corners of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ey 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 is determined that the State is holding money beyond what is legally permissible, it has a binding duty to refund the same. A Full Bench of this Court in New India Industries Ltd. Vs. Union of India, 1990 Mh.L.J. 5, held that an application under Article 226 of the Constitution of India would lie for enforcing the obligation of the State to refund and/or return the money collected towards illegal tax or dues. In that case, this Court held that it would be abhorrent to the principles of justice if the State is permitted to retain money unjustly gained or recovered. The same would have to be be refunded. The Full Bench also negated a contention that in a case of tax refundable, the State should be allowed to retain the same with the discretion of how to benefit those who has borne the burden. 41. Thus, having considered all aspects of the matter, we have no hesitation to hold that principal service tax dues quantified by the respondent vide order i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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