TMI Blog2022 (9) TMI 317X X X X Extracts X X X X X X X X Extracts X X X X ..... e Board, which shall not be less than the amount to be paid to such creditors, in the event of liquidation of the Corporate Debtor under Section 53, or the amount that would have been paid to such operational creditors, if the amount to be distributed under the resolution plan had been distributed in accordance with the order of priority in Sub-section 2 of Section 53, whichever was higher, and provided for the payment of debts of financial creditors, who did not vote in favour of the resolution plan, in such manner as might be specified by the Board. Under Section 31 of the IBC, a resolution plan as approved by the Committee of Creditors under Sub-Section (4) of Section 30 might be approved by the Adjudicating Authority only if the Adjudicating Authority is satisfied that the resolution plan as approved by the Committee of Creditors meets the requirements as referred to in Sub- Section (2) of Section 30 of the IBC. The condition precedent for approval of a resolution plan is that the resolution plan should meet the requirements of Sub-Section (2) of Section 30 of the IBC. If the Resolution Plan ignores the statutory demands payable to any State Government or a legal authorit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this appeal is, whether the provisions of the IBC and, in particular, Section 53 thereof, overrides Section 48 of the GVAT Act which is set out herein below for convenience:- 48. Tax to be first charge on property.- Notwithstanding anything to the contrary contained in any law for the time being in force, any amount payable by a dealer or any other person on account of tax, interest or penalty for which he is liable to pay to the Government shall be a first charge on the property of such dealer, or as the case maybe, such person. 3. The respondent, a company within the meaning of the Companies Act, 2013 is engaged in the business of manufacture and sale of Crafts and Oars within and outside the State of Gujarat since 16th April, 1990. 4. The appellant has, from time to time, been assessed for Value Added Tax (VAT) and Central Sales Tax (CST) under the GVAT Act. It is stated that an amount of Rs.53,71,65,489/- is due from the Respondent to the Sales Tax authorities towards CST and VAT, as per the statement enclosed at Page 44 of the Paper Book. 5. On or about 8th July, 2016, recovery proceedings were initiated against the respondent, in respect of its dues for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d off. The order of the RP was conveyed to the appellant by an email dated 6th November, 2018. 15. On or about 20th December, 2018, the appellant challenged the Resolution Plan by making an application being I.A No. P-01 of 2019 before the Ahmedabad Bench of the NCLT contending that Government dues could not be waived off. The appellant prayed for payment of total dues of Rs.47,35,72,314/- towards VAT/CST on the ground that the Sales Tax Officer was a secured creditor. 16. By an order dated 27th February, 2019 in IA No. 224/271/272/337 of 2018 and P-01 of 2019 in CP No.(IB) 88 of 2017, the Adjudicating Authority being the Ahmedabad Bench of the NCLT rejected the application made by the appellant as not maintainable. The Adjudicating Authority (NCLT) Ahmedabad held:- 13. The Resolution Applicant again filed the amended resolution plan on 26.05.2018. On scrutiny RP issued certificate on 28.05.2018 in compliance of the Regulation 39(2). Accordingly, RP/the applicant issued notice dated 29.05.2018 for convening the eighth and final meeting of CoC on 04.06.2018. In the said meeting, CoC sought certain changes in the plan. In view of that, the Resolution Applicant was permi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Section 53 of the I B Code , the Government cannot claim first charge over the property of the Corporate Debtor . Section 48 cannot prevail over Section 53. Therefore, the Appellant State Tax Officer-(1) do not come within the meaning of Secured Creditor as defined under Section 3(30) read with Section 3(31) of the I B Code . 39. Further, as Sales Tax Department filed its claim at belated stage after the plan had been approved by the Committee of Creditors , the Resolution Professional had no jurisdiction to entertain the same and rightly not entertained. 19. Sections 30 and 31 of the IBC are set out hereinbelow for convenience:- 30. Submission of resolution plan.-(1) A resolution applicant may submit a resolution plan along with an affidavit stating that he is eligible under Section 29-A to the resolution professional prepared on the basis of the information memorandum. (2) The resolution professional shall examine each resolution plan received by him to confirm that each resolution plan- (a) provides for the payment of insolvency resolution process costs in a manner specified by the Board in priority to the payment of other debts of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have been given and it shall not be a contravention of that Act or law. (3) The resolution professional shall present to the committee of creditors for its approval such resolution plans which confirm the conditions referred to in sub-section (2). (4) The committee of creditors may approve a resolution plan by a vote of not less than sixty-six per cent of voting share of the financial creditors, after considering its feasibility and viability the manner of distribution proposed, which may take into account the order of priority amongst creditors as laid down in sub-section (1) of Section 53, including the priority and value of the security interest of a secured creditor, and such other requirements as may be specified by the Board: Provided that the committee of creditors shall not approve a resolution plan, submitted before the commencement of the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2017 (Ord. 7 of 2017), where the resolution applicant is ineligible under Section 29-A and may require the resolution professional to invite a fresh resolution plan where no other resolution plan is available with it: Provided further that where the resolution ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the requirements referred to in sub-section (1), it may, by an order, reject the resolution plan. (3) After the order of approval under sub-section (1),- (a) the moratorium order passed by the Adjudicating Authority under Section 14 shall cease to have effect; and (b) the resolution professional shall forward all records relating to the conduct of the corporate insolvency resolution process and the resolution plan to the Board to be recorded on its database. (4) The resolution applicant shall, pursuant to the resolution plan approved under sub-section (1), obtain the necessary approval required under any law for the time being in force within a period of one year from the date of approval of the resolution plan by the Adjudicating Authority under sub- section (1) or within such period as provided for in such law, whichever is later: Provided that where the resolution plan contains a provision for combination, as referred to in Section 5 of the Competition Act, 2002 (12 of 2003), the resolution applicant shall obtain the approval of the Competition Commission of India under that Act prior to the approval of such resolution plan by the committee of credi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at each stage of the distribution of proceeds in respect of a class of recipients that rank equally, each of the debts will either be paid in full, or will be paid in equal proportion within the same class of recipients, if the proceeds are insufficient to meet the debts in full; and (ii) the term workmen's dues shall have the same meaning as assigned to it in Section 326 of the Companies Act, 2013 (18 of 2013). 21. In exercise of power conferred under Sections 5, 7, 9, 14, 15, 17, 18, 21, 24, 25, 29, 30, 196 and 208 read with Section 240 of the IBC, the Insolvency and Bankruptcy Board of India, hereinafter referred to as Board, has framed the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016, hereinafter referred to as the 2016 Regulations . Some of the relevant provisions of the 2016 Regulations are extracted hereinbelow for convenience :- 4. Access to books.-(1) Without prejudice to Section 17(2)(d), the interim resolution professional or the resolution professional, as the case may be, may access the books of account, records and other relevant documents and information, to the extent releva ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al under Regulation 3; and (c) willing to act as authorised representative of creditors in the class. (3) The interim resolution professional shall obtain the consent of each insolvency professional identified under subregulation (2) to act as the authorised representative of creditors in the class in Form AB of the Schedule. 6. Public announcement.-(1) An insolvency professional shall make a public announcement immediately on his appointment as an interim resolution professional. Explanation: Immediately means not later than three days from the date of his appointment. (2) The public announcement referred to in sub-regulation (1) shall: (a) be in Form A of the Schedule; (b) be published- (i) in one English and one regional language newspaper with wide circulation at the location of the registered office and principal office, if any, of the corporate debtor and any other location where in the opinion of the interim resolution professional, the corporate debtor conducts material business operations; (ii) on the website, if any, of the corporate debtor; and (iii) on the website, if any, designated by the Board for the purpo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... committee. (2) The existence of debt due to the financial creditor may be proved on the basis of- (a) the records available with an information utility, if any; or (b) other relevant documents, including- (i) a financial contract supported by financial statements as evidence of the debt; (ii) a record evidencing that the amounts committed by the financial creditor to the corporate debtor under a facility has been drawn by the corporate debtor; (iii) financial statements showing that the debt has not been paid; or (iv) an order of a court or tribunal that has adjudicated upon the non-payment of a debt, if any. 8-A. Claims by creditors in a class.-(1) A person claiming to be a creditor in a class shall submit claim with proof to the interim resolution professional in electronic form in Form CA of the Schedule. (2) The existence of debt due to a creditor in a class may be proved on the basis of- (a) the records available with an information utility, if any; or (b) other relevant documents, including any- (i) agreement for sale; (ii) letter of allotment; (iii) receipt of payment made; or (iv) suc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sfaction of claim, if any. 10. Substantiation of claims.-The interim resolution professional or the resolution professional, as the case may be, may call for such other evidence or clarification as he deems fit from a creditor for substantiating the whole or part of its claim. 11. Cost of proof.-A creditor shall bear the cost of proving the debt due to such creditor. 12. Submission of proof of claims.-(1) Subject to subregulation (2), a creditor shall submit claim with proof on or before the last date mentioned in the public announcement. (2) A creditor, who fails to submit claim with proof within the time stipulated in the public announcement, may submit the claim with proof to the interim resolution professional or the resolution professional, as the case may be, on or before the ninetieth day of the insolvency commencement date. (3) Where the creditor in sub-regulation (2) is a financial creditor under Regulation 8, it shall be included in the committee from the date of admission of such claim: Provided that such inclusion shall not affect the validity of any decision taken by the committee prior to such inclusion. 12-A. Updation of claim.-A c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ic announcement. Sub-Regulation (2) was amended with effect from 4th July, 2018 and now reads a creditor shall submit claim with proof on or before the last date mentioned in the public announcement . 23. The Regulations have to be read as a whole and not in a truncated manner and interpreted in the light of the statutory provisions of the IBC, as interpreted by this Court. This Court has time and again held that the time lines stipulated in the IBC even for completion of proceedings are directory and not mandatory. 24. In this case, claims were invited well before the 5th October, 2017 which was the last date for submission of claims. Under the unamended provisions of Regulation 12(1), the Appellant was not required to file any claim. Read with Regulation 10, the appellant would only be required to substantiate the claim by production of such materials as might be called for. The time stipulations are not mandatory as is obvious from Sub-Regulation (2) of Regulation 14 which enables the Interim Resolution Professional or the Resolution Professional, as the case may be, to revise the amounts of claims admitted, including the estimates of claims made under Sub-Regulation (1) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nition of secured creditor under the IBC. 29. As argued by the learned Solicitor General, the term Secured Creditor as defined under the IBC is comprehensive and wide enough to cover all types of security interests namely, the right, title, interest or a claim to property, created in favour of, or provided for a secured creditor by a transaction, which secures payment or performance of an obligation and includes mortgage, charge, hypothecation, assignment and encumbrance or any other agreement or arrangement securing payment or performance of any obligation of any person. 30. The learned Solicitor General rightly argued that in view of the statutory charge in terms of Section 48 of the GVAT Act, the claim of the Tax Department of the State, squarely falls within the definition of Security Interest under Section 3(31) of the IBC and the State becomes a secured creditor under Section 3(30) of the Code. 31. Mr. Nataraj, Additional Solicitor General submitted that the Appellate Authority, NCLAT has held that the Tax Department of the State does not fall within the meaning of Secured Creditor . The NCLAT has, according to Mr. Nataraj, come to such a conclusion on the erron ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tor - (a) ..... (b) the latest annual financial statements; (c) audited financial statements of the corporate debtor for the last two financial years and provisional financial statements for the current financial year made up to a date not earlier than fourteen days from the date of the application; (d) .... ....... (h) details of all material litigation and an ongoing investigation or proceeding initiated by Government and statutory authorities; (i) .... ...... (I) other information, which the resolution professional deems relevant to the committee. 39. The Adjudicating Authority (NCLT) and the Appellate Authority (NCLAT) have held that the claim of the State is belated. Regulation 12 of the 2016 Regulations deals with the time period for submission of a claim along with proof, as stipulated in the public announcement under Section 15 of the IBC. The time period is, however, not mandatory but only directory. 40. In the case of Vishal Saxena Anr. v. Swami Deen Gupta Resolution Professional (2020) SCC Online NCLT 2734, the NCLT took the view that the time stipulation in Regulation 12 for submission of a claim is direct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in sub-section (1) of Section 53, whichever is higher. The resolution plan is also required to provide for the payment of debts of financial creditors, who do not vote in favour of the resolution plan, which also shall not be less than the amount to be paid to such creditors in accordance with sub-section (1) of Section 53 in the event of a liquidation of the corporate debtor. Explanation 1 to clause (b) of subsection (2) of Section 30 of the I B Code clarifies for the removal of doubts that a distribution in accordance with the provisions of the said clause shall be fair and equitable to such creditors. The resolution plan is also required to provide for the management of the affairs of the corporate debtor after approval of the resolution plan and also the implementation and supervision of the resolution plan. Clause (e) of sub-section (2) of Section 30 of the I B Code also casts a duty on RP to examine that the resolution plan does not contravene any of the provisions of the law for the time being in force. 43. The learned Solicitor General rightly argued that when a grievance was made before the Adjudicating Authority with regard to a Resolution Plan, the Adjudicating Aut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ors under Sub-Section (4) of Section 30 might be approved by the Adjudicating Authority only if the Adjudicating Authority is satisfied that the resolution plan as approved by the Committee of Creditors meets the requirements as referred to in Sub- Section (2) of Section 30 of the IBC. The condition precedent for approval of a resolution plan is that the resolution plan should meet the requirements of Sub-Section (2) of Section 30 of the IBC. 47. In Ebix Singapore Private Limited v. Committee of Creditors of Educomp Solutions Limited and Another (2022) 2 SCC 401, this Court affirmed that Resolution Plans would have to conform to the statutory provisions of the IBC, and held: - 147. In terms of Regulation 39(4), the RP shall endeavour to submit the resolution plan approved by the CoC before the adjudicating authority for its approval under Section 31 IBC, at least fifteen days before the maximum period for completion of CIRP. Section 31(1) provides that the adjudicating authority shall approve the resolution plan if it is satisfied that it complies with the requirements set out under Section 30(2) IBC. Essentially, the adjudicating authority functions as a check on the role ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reunder, the Resolution would have to be rejected. It is also a well settled principle of interpretation that the expression may , if circumstances so demand can be construed as Shall . 52. If the Resolution Plan ignores the statutory demands payable to any State Government or a legal authority, altogether, the Adjudicating Authority is bound to reject the Resolution Plan. 53. In other words, if a company is unable to pay its debts, which should include its statutory dues to the Government and/or other authorities and there is no plan which contemplates dissipation of those debts in a phased manner, uniform proportional reduction, the company would necessarily have to be liquidated and its assets sold and distributed in the manner stipulated in Section 53 of the IBC. 54. In our considered view, the Committee of Creditors, which might include financial institutions and other financial creditors, cannot secure their own dues at the cost of statutory dues owed to any Government or Governmental Authority or for that matter, any other dues. 55. In our considered view, the NCLAT clearly erred in its observation that Section 53 of the IBC over-rides Section 48 of the GVAT Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X
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