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TMI Blog2022 (9) TMI 908X X X X Extracts X X X X X X X X Extracts X X X X ..... ticular time period. It is pertinent to note that the policy / scheme was to enhance / boost industrial production by providing some monitory incentive/concession and not to earn interest and the interest payment in case of default in repayment is purely in the nature of a penalty. It is reiterated that there is no actual disbursement of money. While so, the contention of the Appellant that since there is no interest factor as per the definition of the financial debt, the claim of the 1st Respondent cannot be considered as financial debt. It is apt to note that one of the most crucial principle is time is essence in any resolution process within which the process has to be completed in a time bound manner as contemplated under the Code - this Tribunal find that the claim of the 1st Respondent herein is belated and cannot be considered and the finding of the Adjudicating Authority in directing the RP to place the claim in Form-C before CoC per se illegal and unsustainable accordingly, the point is answered against the 1st Respondent. Whether the RP has power to admit the claims suo-motu? - HELD THAT:- The code prescribes the duties to be performed by the Interim Resolution P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctioned the proposal by granting several incentives and concessions. On 23.06.2013 the 1st Respondent issued a loan eligibility certificate to the unit for a sum of Rs.226.87 crores to the Corporate Debtor as interest free loan subject to the terms and conditions contained in the loan eligibility certificate dated 26.06.2013. The incentives and concessions granted to the Corporate Debtor was entered into an agreement dated 05.08.2013 between the Respondent No.1 and the Corporate Debtor. The Respondent No.1 released interest free loan to the Corporate Debtor against the submission of bank guarantee as security from 2014-2017. The Union Bank of India issued bank guarantee on 19.06.2014 for an amount of Rs.2,75,00,000/- which was due to expire on 18.06.2019. 4. It is submitted the CIRP was initiated against the Corporate Debtor vide order dated 26.10.2018 and the RP issued public announcement inviting claims in Form-A from the general public. On the basis of claims received, the RP constituted the CoC comprising of Oriental Bank of Commerce, UBI and Bank of Baroda. It is pertinent to note that no claim was received by the RP from the 1st Respondent. The bank guarantee given by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... laim because the debt was clearly disclosed in audited financial statements of the Corporate Debtor, is legally untenable. Such a finding should be rejected in toto as the same is against the basic tenets of the code and would lay down a completely wrong precedent leading to failure of the Code in near future. The Learned Senior Counsel emphasises the duties prescribed to be performed by the RP under Section 18 and 21 of the I B Code, 2016 8. In view of the reasons as stated above the Learned Senior Counsel prayed this Bench to allow the Appeal by setting aside the impugned order passed in I.A. No. 85 of 2021. Respondent s Submissions: 9. The 1st Respondent filed its reply and denied the averments made by the Appellant. It is stated in the reply that the Learned Adjudicating Authority vide its order dated 28.05.2021 directed that the claim of this Respondent is to be put by RP before the CoC and also to consider reconstituting the CoC. 10. It is also averred that the Learned Adjudicating Authority determined the issues in the order that the claim of the Respondent should have been considered by the RP based on the books of accounts of the Corporate Debtor and wheth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1. (1) I.A. No.85 of 2021 CP (IB) No.51/BB/2018 is disposed of with the directions that the claim filed by the applicant, the State of Karnataka, Department of Industries and Commerce as a Financial Creditor in Form-C shall be put up by the RP to the CoC for its consideration/acceptance, in the light of our findings and decision in the forgoing paragraphs. Reconstitution of the CoC will also be considered by the RP. 15. From the aforesaid directions, the Adjudicating Authority declared as under: viz. (a) 1st Respondent i.e. State of Karnataka Department of Industries and Commerce as a Financial Creditor, (b) The claim of the 1st Respondent shall be put up by the RP to the CoC for its consideration/acceptance. 16. The basis arriving such finding by the Adjudicating Authority on the following facts. 17. The Corporate Debtor approached the 1st Respondent (being the Department of Industries of Commerce which acts as a catalyst for the overall development of the industrial sector in the State of Karnataka) to avail sanction of loan under the special incentives and concessions scheme on 28.12.2021. The project of the Corporate Debtor to establish a wood-based i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gs have been stayed. The Hon ble High Court on 04.03.2021 disposed of the writ petition directing the 1st Respondent to move before the NCLT for its claim. Accordingly, the I.A. No.85 of 2021 came to be filed before the Adjudicating Authority seeking reliefs as prayed therein. 21. The Adjudicating Authority while deciding the aforesaid I.A. No.85 of 2021 framed issues whether the 1st Respondents claim would amount to a financial debt and whether such claim can be considered even if not submitted within the period stipulated under Regulation 12(2) of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate persons) Regulations 2016. 22. In regard to the aforesaid issues the Adjudicating Authority para 9 and para 12(8) of the impugned order (at page no. 80 84 of appeal paper book) observed as under: 9. Hence, we are of the view that the Respondent s argument that no actual money was disbursed for the time value of money and that there was no financial debt has to be rejected and the said transaction has to be considered as Financial Debt under Section 5(8) of the Code. 12(8). Hence, since the time lines referred to in Regn. 12(2) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e eligible gross VAT as soft loan for 10 years from the date of commencement of commercial production to be repay in 10 annual equal instalments starting from the eleventh year, not acceding 50% of the investment made by the unit. 2. 95% of the CST generated by inter-state sales of the end products to be reimbursed in the initial 5 years. 3. Exemption from payment of electricity duty in the initial 5 years from the date of commencement of commercial production on the power supply received from ESCOMs or power utilized from captive generation. 4. Eligible gross VAT should be worked out based on the following principles. i. For sales made by the industrial unit meant for final consumers within the state, the Gross VAT on this transaction will be the Eligible Gross VAT. ii. For sales made by the industrial unit to other declares within the state who in turn make inter-state sales, stock transfer or export sales, the buying dealer(s) will be eligible to claim ITC equivalent to Gross VAT on this turnover. The Gross VAT on this turnover will not be eligible for the loan incentive. iii. Any sales or purchase between the company and its ancillary units or down ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cludes inter alia financial debt. The definition of Financial Debt in Section 5(8) of IBC does not expressly exclude an interest free loan. Financial Debt would have to be construed to include interest free loans advanced to finance the business operations of a corporate body. 27. In view of the judgment of the Hon ble Supreme Court (supra) even if the money borrowed does not carry any interest and include interest free loan advanced to finance the business operations of a corporate body, would amount to financial debt within the meaning of Section 5(8) of the Code. Therefore, the stand of the Appellant that there is no interest component for the claim made by the 1st Respondent is negatived. 28. From the above government order it is seen that there is no time value of money involved in such an arrangement. The Hon ble Supreme Court in Phoenix ARC Pvt. Ltd. Vs. Spade Financial Services Limited Ors. reported in (2021) SCC Online SC 51 para 50 held as under: The IRP in his letter dated 25.05.2018 has noted that as per the ledger provided by Spade, no interest was claimed on the alleged debt and no adjustment was made regarding the payment of Principal or interest b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 . 30. 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 . 32. Further, the Hon ble High Court of Madras in Ruchi Soya Industries Ltd. Vs. Union of India Anr. in W.P. No. 31090 of 2015 dated 26.04.2021 held that the customs duty is operational debt at para 80 held as under: 80. The petitioner shall therefore file an appropriate application before the National Company Law Board and get the issue clarified from the National Company Law Board that the indeed crown debts like the differential customs duty pay ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lant s claims is directed to consider at belated stage it will not only be unfair to the other creditors who could not file their claim with the RP because of the delay but would also dilute the purpose of publication of Form-A. CIRP is a time bound process and if the Adjudicating Authority sets the clock back, it would certainly go against main objective of the Code. 35. Further, this Tribunal in the matter of Deputy Commissioner of GST Central Excise Vs. Mr. Vijay Kumar V. Iyer in Company Appeal (AT) (Ins) No. 604 of 2021 para 10 12 held as under: 10. We have gone through the Appeals and although it is stated that collectively Hundred Crores are involved with regard to both the Appeals, the fact remains that till the Resolution Professional was approved no claim was submitted by the Appellants in both these Appeals. The Impugned Order shows that these were proceedings arising out of Company Petitions of 2018 and thus the excuse of Covid-19 which attracted Lockdown in March, 2020 is not appealing. 12. Keeping in view above observations of Hon ble Supreme Court of India, we do not find any reason to entertain these Appeals. Even if the Resolution Plan has been ch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. 39. The next point for consideration is whether the RP has power to admit the claims suo-motu? 40. The code prescribes the duties to be performed by the Interim Resolution Professional and the Resolution Professional , as per Section 18 and Section 25 of the I B Code, 2016. The IBBI (Insolvency Resolution Process for Corporate persons) Regulations 2016, prescribes the procedure to be adopted/followed. As per Chapter IV Regulation 7 of the Regulations, the Claims by the Operational Creditor to be submitted with proof to the Interim Resolution Professional in Form-B and as per Regulation 8 of the Regulations, the Financial Creditors shall submit the Claims to the Interim Resolution Professional in Form-C. After receipt of the Claims , the Interim Resolution Professional , shall verify the Claims in accordance with Regulation 13 and the Interim Resolution Professional , maintained List of Creditors , containing Names of Creditors along with the Amount claimed by them, the amount of their Claims admitted and the Security Interest , if any, in respect of such Claims . There is no such provision that the Interim Resolution Professional , shall adm ..... X X X X Extracts X X X X X X X X Extracts X X X X
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