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TMI Blog2022 (1) TMI 870X X X X Extracts X X X X X X X X Extracts X X X X ..... rahari Member (T) Brief Facts of the Case: 1) The present appeal is filed by the Appellant aggrieved by the order dated 02nd March 2020 passed by the 'Adjudicating Authority' (NCLT, Cuttack Bench, Cuttack) in CA No.188 of 2019 in TP No.41 of 2019 whereby the 'Adjudicating Authority' approved the Resolution Plan under Section 31 of the Insolvency and Bankruptcy Code, (hereinafter "the Code") 2016. APPELLANT'S SUBMISSIONS: 2) It is submitted that the Adjudicating Authority while approving the Resolution Plan reduced the allocation towards the claims of the Appellant significantly by making an allocation of Rs. 1,00,00,000/- whereas the claim made by the Appellant was Rs. 2,75,46,497/-. Thus, there is a reduction of the claim of the Appellant to the extent a sum of Rs. 1,75,46,497/-. The brief facts as under: 3) It is stated that the Appellant on 08.05.2019 issued a letter to the Corporate Debtor to pay the difference in Service Tax payable for the Financial Year 2015-16 followed by a reminder letter dated 28.06.2019. In response to the above, the Respondent No.1 herein vide letter dated 26.07.2019 intimated the Appellant that he has been appointed as the Resolution Professional ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the Resolution Plan cannot extinguish statutory dues without seeking approval of the concerned Revenue Authority as it does not arise out of a mutual agreement or contract. The dues arise pursuant to a Provision in the respective statute levying such charges or obligations on the payer. As such the statutory dues are different from contractual dues. 9) The Learned Adjudicating Authority erred in law by waiving off statutory dues and the same will constitute breach of the relevant statute under which such dues arose. Therefore, extinguishment of statutory dues without following adequate procedures and merely seeking resort to liquidation value argument cannot be said to be in due compliance of law. 10) In view of the reasons., it is prayed that the Impugned Order of the Adjudicating Authority dated 02.03.2020 be set aside. 1ST RESPONDENT SUBMISSIONS: 11) It is submitted that the Impugned Order in the present appeal dated 02.03.2020 of the Adjudicating Authority passed under Section 31(1) of the Code affirming the Resolution Plan dated 06.12.2019 submitted by the 3rd Respondent (Arcelor Mittal), which had been approved by the Committee of Creditors of the Corporate Debtor. It ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itted by the tax payer. It is stated that the amount of Rs. 1 crore was paid to the Appellant on 18.09.2020. 16) The main challenge of the Appellant with regard to non-compliance of provisions of the Code specifically Section 30 of the Code read with Regulation 38(1A) of the CIRP Regulations. 17) This Respondent states that the Service Tax dues claimed by the Appellant before this Respondent is in the nature of statutory dues payable to the Central Government which is covered under 'Operational Debt' defined in Section 5(21) of the Code. However, Section 30 sub section 2(b) of the Code provides for payment of debts of Operational Creditors in such a manner as may be specified by the Board as contemplated in the Provisions. The Plan was in accordance with law and the same was approved by the Hon'ble Adjudicating Authority. Even otherwise, the Appellant has been paid a sum of Rs. 1 Crore which constitutes 36.30% of the amount claimed by the Appellant. 18) It is stated that the Plan has been complied with the CIRP Regulations and dealt with the interest of all the stakeholders of the Corporate Debtor including Financial Creditors and Operational Creditors. 19) It is stated that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... preme Court in Committee of Creditors of Essar Steel India Ltd. v Satish Kumar Gupta and Ors. 2019 (16) SCALE 319 held that the ultimate discretion of what to pay and how much to pay each class or sub class of Creditors is with the Committee of Creditors, but the decision of such Committee must reflect the fact that it has taken into account maximizing the value of the assets of the Corporate Debtor and the fact that it has adequately balanced the interest of all stakeholders including Operational Creditors. Further the Hon'ble Supreme Court held that the Judicial review of the Adjudicating Authority that the Resolution Plan as approved by the Committee of Creditors has met the requirements referred to in Section 30(2) would include Judicial review that is mentioned in Section 30(2)(e) as the Provisions of the Code are also Provisions of Law for the time being in force. It is also held that the Adjudicating Authority cannot interfere on merits with the commercial decision taken by the Committee of Creditors. 24) It is stated that the Resolution Plan as approved by the Hon'ble Adjudicating Authority is in compliance with the Provisions of the Code as well as the law laid down by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the Hon'ble Supreme Court in the matter of Essar Steel makes it clear that the ultimate discretion while deciding the payout is vested with the Committee of Creditors and it has very limited power with regard to judicial review. It is submitted that if the COC rejects the Plan of this Respondent, the COC has no other option except to pass a Resolution to liquidate the Corporate Debtor. To avoid such situation and the liquidation only as a matter of last resort as observed by the Hon'ble Supreme Court, the COC acted in terms of the Judgment of the Hon'ble Supreme Court in Essar Steel and ensured that the Corporate Debtor would revive as a going concern and at the same time ensured that all stakeholders get the maximum recoveries. 31) It is submitted that the argument of the Appellant that the Resolution Plan cannot extinguish statutory dues without seeking approval of the concerned authority is an argument of desperation by the Appellant. It is submitted that the Hon'ble Supreme Court in Essar Steel clarified the law on extinguishment of claims and the concept of a Resolution Applicant commencing on a clean state after the Resolution Process. (Page 12 Para 67). As per the dec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for all the purposes the claim of the Appellant come within the definition of Section 5 of Sub Section 21 of the I&B Code, 2016. With regard to the second issue the contention of the Appellant that the statutory dues stand on different footing than the Operational Creditors, whose claims have arisen pursuant to a contract, whereas the claim of the Appellant is a statutory liability of the Corporate Debtor i.e. OSPIL. We are not in agreement with this submission. As stated supra, the claim of the Appellant is an Operational Debt and for all purposes the I&B Code, 2016 shall only apply. There is no special treatment or category made separately for such dues and the claim of the Appellant are to be treated as Operational Debt. Even this Tribunal in the matter of Principal Director General of Income Tax v M/s. Synergies Dooray Automotive Ltd. and Ors. in Company Appeal (AT)(INS) No.205 of 2007, held as under: "Para 29 As Income Tax, value added tax and other statutory dues arising out of existing law, arises when the Company is operational, we hold such statutory dues as direct nexus with operation of the company. For the said reason also we hold that all statutory dues including 'i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cant thus 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 account." 39) From the above Judgment, it is clear that the payments are to be made in terms of approved Resolution Plan by the Resolution Applicant of the claims admitted by the Resolution Professional. Once the Resolution Applicant takes over the Corporate Debtor on a fresh slate, the claims of all creditors get settled and extinguish by operation of the I&B Code. 40) Section 238 of the I&B Code has overriding effect of other laws. Therefore, the stand of the Appellant that the statutory dues cannot be extinguished has no legs to stand. 41) From the perusal of correspondence, the Appellant has made its claim before the Resolution Professional and the Resolution Professional has admitted the claim. 42) The contention of the Appellant that the Adjudicating Authority has ignored the Judgment of the Hon'ble Supreme Court in Essar Steels India Ltd. supra in the Impugned Order. We have carefully examined the Impugned Order and do not find any infirmity or illegality. Further, the contention of the Appellant with regard to the decision of the Ho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on'ble Supreme Court the Commercial Wisdom of the Committee of Creditors is paramount and cannot be interfered unless and until it violates the rules and regulations of the Code. 43) Further the Hon'ble Supreme Court held that it is the Commercial wisdom of the requisite majority of the Committee of Creditors, which may invoke differential payment to different classes of creditors as held under: "88. By reading para 77 (of Swiss Ribbons) Dehorse the earlier paragraphs, the Appellate Tribunal has fallen into grave error. Para 76 clearly refers to the UNCITRAL legislative guide which makes it clear beyond any doubt that equitable treatment is only of similarly situated creditors. This being so, the observation in Para 77 cannot be read to mean that financial and Operational Creditors must be paid the same amounts in any resolution plan before it can pass muster. On the contrary, para 77 itself makes it clear that there is a difference in payment of the debts of financial and operational Creditors, Operational Creditors having to receive a minimum payment, being not less than liquidation value, the which does not apply to Financial Creditors. The amended regulations 38 set out in p ..... X X X X Extracts X X X X X X X X Extracts X X X X
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