An issue plaguing successful resolution applicants under the
Insolvency and Bankruptcy Code, 2016 (“IBC”)
is with respect to government claims pertaining to the period prior to approval
of the Resolution Plan. Government claims, such as those raised by the Income
Tax Department, Central and State GST Department, extinguished by resolution
plans continue to be pursued by such departments by way of issuance of demand
notices under respective statutes.
UltraTech Nathdwara Cement Ltd. (formerly Binani Cements Ltd.) (“UNCL”) had filed a Writ Petition on the
issue in the Rajasthan High Court, Jodhpur, for quashing the demand notices/
orders issued by the Tax Departments with respect to dues pertaining to the
period prior to the approval of the Resolution Plan. The demand notices etc.
were primarily with respect to disputes for the period prior to the corporate insolvency
resolution contested by the Corporate Debtor i.e. Binani Cements Ltd.
It was the case of UNCL that the Resolution Plan and its provisions
are binding on all the stakeholders of the Corporate Debtor. The Resolution
Plan provided for payment of INR 72.85 crores to the Central GST Department as
against the total claim filed with the Resolution Professional of Binani Cement
Ltd. and extinguishment of the balance claims. Arguments on behalf of UNCL were
led by Sr. Counsel Mr. Ajay Vohra on the following grounds:
a.
The SLP filed by the Department challenging the
order of the National Company Law Appellate Tribunal approving the Resolution
Plan of UltraTech Cement Ltd. was dismissed by the Hon’ble Supreme Court;
b. A Resolution Plan
approved by the Committee of Creditors (“COC”)
and the Adjudicating
Authority/NCLT under the IBC, is binding on all stakeholders of the
Corporate Debtor;
c.
Section 31 of the IBC, as amended, also provides for
the Resolution Plan to be binding on all stakeholders 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;
d. The Hon’ble
Finance Minister also clarified the legislative intent behind the amendment
to Section 31 of the IBC;
e.
The resolution plan is final and binding on all
parties whether or not they had been heard by the resolution professional or
the COC, has been laid to rest by Hon'ble The Supreme Court in the case of Committee of Creditors of Essar Steel India
Ltd. Through Authorised Signatory Vs. Satish Kumar Gupta & Ors. reported
in 2019(16) SCALE 319.
Mr. Ajay Vohra, Sr. Counsel was assisted by Mr. Arnab Roy. Mr. Bomi
Daruwala, Ms. Sandhya Iyer and Ms. Pratiksha Agrawal of Vaish Associates
Advocates also worked on the matter.
The counsel for the Respondents opposed the Writ Petition on the
following grounds:
a.
The Department was not heard by the COC before
finalising the Resolution Plan;
b.
A summary rejection of the SLP preferred by the
department against the resolution plan would not foreclose the right of the
department to raise its valid demands from the successful resolution applicant.
The Bench comprising of Hon’ble Mr. Justice Vijay Bishnoi and
Hon’ble Mr. Justice Sandeep Mehta of the Jodhpur Bench of the Rajasthan High
Court, while rejecting the contentions of the Respondents observed that the
Respondents were not in a position to dispute the fact that the SLP covered all
the issues and that Section 31 of the IBC is applicable to the situation at
hand.
The Hon’ble HC, while relying heavily on the stance of the Hon’ble
Finance Minister in the Rajya Sabha, and on the judgment of the Hon’ble Supreme
Court in Essar Steels (supra), allowed the Writ Petition held that:
“… the Respondents would be acting in a totally
illegal and arbitrary manner while pressing for demands raised vide the notices
which are impugned in this writ petition and any other
demands
which they may contemplate for the period prior to the resolution plan being
finalized. The demand notices are ex-facie illegal, arbitrary and per-se and
cannot be sustained.”
The demand
notices and orders were accordingly struck down. Also, the Hon’ble HC made the
following
observation:
“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.”
Vaish Associates Advocates previously represented UltraTech Cement
Ltd. in preparing the Resolution Plan for acquiring Binani Cements Ltd., one of
the first major successful resolutions under the IBC.
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