Gujarat High Court
The Commissioner Of Customs ... vs Ultratech Nathdwara Cement Ltd. ... on 5 February, 2021
Author: J. B. Pardiwala
Bench: J.B.Pardiwala, Ilesh J. Vora
C/TAXAP/754/2007 IA ORDER DATED: 05/02/2021
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
CIVIL APPLICATION (FOR ORDERS) NO. 1 of 2020
In
R/TAX APPEAL NO. 754 of 2007
==========================================================
ULTRATECH NATHDWARA CEMENT LIMITED(EARLIER KNOWN AS BINANI CEMENT LIMITED) Versus THE COMMISSIONER OF CUSTOMS (PREVENTIVE) ========================================================== Appearance:
for the PETITIONER(s) No. MR. MIHIR JOSHI, LD. SR. COUNSEL WITH MR. GAURAV MATHUR, LD. ADVOCATE FOR SINGHI & CO for the PETITIONER(s) No. MR DHAVAL D VYAS for the RESPONDENT(s) No. ========================================================== CORAM: HONOURABLE MR. JUSTICE J.B.PARDIWALA and HONOURABLE MR. JUSTICE ILESH J. VORA Date : 05/02/2021 IA ORDER (PER : HONOURABLE MR. JUSTICE J.B.PARDIWALA)
1. On 1st February, 2021, this Court passed the following order;
"1. This civil application is at the instance of the original respondent of the Tax Appeal No.754 of 2007 filed by the Revenue. The following has been prayed in this civil application;
"(A) This Hon'ble Court may be pleased to pass an order substituting the name of the Respondent in Tax Appeal No.754 of 2007 to UltraTech Nathdwara Cement Limited (Applicant herein); and Page 1 of 26 Downloaded on : Wed Jan 12 07:02:30 IST 2022 C/TAXAP/754/2007 IA ORDER DATED: 05/02/2021 (B) This Hon'ble Court may be pleased to pass an order dispose of the Tax Appeal No.754 of 2007 as the same would not survive in light of the sanctioning of the Final Resolution Plan dated 25.05.2018; and (C ) This Hon'ble Court may be pleased to grant such other and further reliefs as may be deemed just and expedient."
2. On 19.10.2021, this Court passed the following order;
"One last opportunity is given to Mr. Vyas to obtain the necessary instructions in the matter, more particularly, whether the appeal filed by The Commissioner of Customs (Preventive) has stood abated in view of certain developments, as pointed out by Mr. Gaurav Mehta, the learned counsel appearing for Singhi & Co for the applicant.
Post this matter on 01.02.2021. On the next date of hearing, the main matter I.e. Tax Appeal No. 754 of 2007 shall also be notified on board. We are saying so because in the event if the department is of the view that the Appeal has not abated or has not become infructuous, then the Court may proceed with the hearing of the Appeal itself being of the year 2007."
3. Mr. Joshi, the learned senior standing counsel appearing for Singhi & Co. submits that the Tax Appeal No.754 of 2007 filed by the Revenue would not survive in light of the sanctioning of the Final Resolution Plan dated 25th May, 2018. Mr. Joshi wants this Court to dispose of the tax appeal accordingly.
4. On the last date of hearing, we had requested Mr. Dhaval Vyas, the learned standing counsel appearing for the Revenue to take appropriate Page 2 of 26 Downloaded on : Wed Jan 12 07:02:30 IST 2022 C/TAXAP/754/2007 IA ORDER DATED: 05/02/2021 instructions in the matter. Today, when the matter is taken up for further hearing, Mr. Vyas places on record a communication received by him in writing from the Superintendent, which reads as under;
"Sir, The CBIC vide instruction dated 22.08.2019 has prescribed monetary limit of Rs. 1 Crore for filing appeal with the High Court and the amount involved in the instant case is well within the same. Moreover, the case does not fall under the exceptions. Therefore, the appeal is liable to be withdrawn.
However, we have to seek approval from the Competent Authority before withdrawing the same and we are in the process for acquiring the same. Accordingly, further instructions for withdrawal of appeal shall be conveyed upon receipt of the directions from the Principal Commissioner, Customs, Jamnagar on top priority.
Regards Piyush Thaker, Superintendent."
5. The plain reading of the communication, referred to above, would suggest that the tax appeal should otherwise also not be entertained having regard to the monetary limit as prescribed. This would be one additional ground over and above the ground raised by the applicant for the purpose of disposal of the tax appeal. Mr. Vyas submits that within a day or two, the Principal Commissioner, Customs, Jamnagar should inform what is to be done with the tax appeal. Apart from the issue of monetary limit, we want the Principal Commissioner, Customs, Jamnagar to apply his mind so far as the sanction of the Final Resolution Plan dated 25th May, 2018 is concerned. If the tax appeal is not to be pressed on the ground of monetary limit, then there Page 3 of 26 Downloaded on : Wed Jan 12 07:02:30 IST 2022 C/TAXAP/754/2007 IA ORDER DATED: 05/02/2021 should not be any problem. Let an appropriate decision be taken by the Principal Commissioner, Customs, Jamnagar within a period of two days from today and he, in turn, shall communicate his decision to the learned standing counsel in writing.
6. Post this matter on 4th February, 2021 on top of the board. "
2. As the Principal Commissioner, Customs, Jamnagar has communicated to the learned Standing Counsel appearing for the Department to proceed with the matter on merits, the same has been taken up for hearing accordingly.
3. The applicant herein is a wholly owned subsidiary of the Ultra Tech Cement Ltd. ("Ultra Tech"for short) and forms a part of the Aditya Birla Group. The erstwhile M/s. Binani Cement Limited (hereinafter referred to as "the Corporate Debtor") came to be acquired by the Ultra Tech by way of an approved resolution plan dated 25th May, 2018 (hereafter referred to as "the Final Resolution Plan") submitted by it in the insolvency proceedings that were initiated against the Corporate Debtor before the National Company Law Tribunal Bench at Kolkata (hereinafter referred to as "the Adjudicating Authority") under the provisions of the insolvency and Bankruptcy Code, 2016 (hereinafter referred to as "the Code"). Pursuant to the aforesaid acquisition, the Ultra Tech took over the management of the Corporate Debtor with effect from Page 4 of 26 Downloaded on : Wed Jan 12 07:02:30 IST 2022 C/TAXAP/754/2007 IA ORDER DATED: 05/02/2021 20th November, 2018 and the name of the Corporate Debtor was changed to the Ultra Tech Nathdwara Cement Limited, i.e, the the applicant herein with effect from 13th December, 2018.
4. The Tax Appeal No.754 of 2007 arises from the order passed by the CESTAT dated 16th November, 2016. The CESTAT remitted the matter to the Commissioner (Appeals). The respondent herein thought fit to prefer the tax appeal before this Court and the same came to be admitted on the following substantial question of law;
"Whether in the facts and circumstances of the present case the Tribunal was justified in directing the Commissioner (Appeals) to ignore the orders of finalization of bills of entry of the Superintendent despite no appeal having been filed by assessee?"
5. We may give a fair idea about the facts involved in the tax appeal;
5.1 The Corporate Debtor imported non-coking steam coal in bulk for home consumption per MV YASA ILHAN from South Africa at the Navlakhi Port. The Bill of Entries were assessed provisionally. On the basis of the test report received from the Customs & Central Excise Laboratory, Vadodara, it was noticed that there was a difference of 40 Kcal/Kg on Air Dry Basis per MT. Based on the said reports the competent authority made the final Page 5 of 26 Downloaded on : Wed Jan 12 07:02:30 IST 2022 C/TAXAP/754/2007 IA ORDER DATED: 05/02/2021 assessment of the Bills of Entry. The final assessment of Bills of Entries was not challenged by the Corporate Debtor.
5.2 The Superintendent however issued notice u/s.28 for the recovery of the differential amount as per Section 18(2) and 28 of the Customs Act, 1962. The proceedings were dropped vide order dated 31.03.2005. The said order was challenged by the department before the Commissioner (Appeals) by filing an Appeal, which was allowed vide order dated 09.05.2006 observing that it was legally incorrect for the superintendent himself to have issued the notice when he had already concluded the final assessment for it would amount to self review.
5.3 The OIA came to be set-aside by the CESTAT vide the order dated 16.11.2016 directing the Commissioner Appeals to rehear the appeals.
6. It is the case of the applicant that a resolution plan, once approved, is binding on all the creditors and stakeholders including the Central Government by virtue of Section 31(1) of the Code. The respondent herein (original appellant) would be an operational creditor within the meaning of Section 5(20) read with Section 5(21) of the Code and its entitlement would stand restricted to the treatment accorded under the approved resolution plan.
Page 6 of 26 Downloaded on : Wed Jan 12 07:02:30 IST 2022C/TAXAP/754/2007 IA ORDER DATED: 05/02/2021
7. We have heard Mr. Mihir Joshi, the learned senior counsel assisted by Mr. Gaurav Mathur, the learned counsel for Singhi & Company appearing for the applicant and Mr. Dhaval Vyas, the learned senior standing counsel appearing for the Department.
8. The short point for our consideration is whether the Tax Appeal No.754 of 2007 would survive in light of the sanctioning of the Final Resolution Plan dated 25.05.2018.
9. Submissions on behalf of the applicant:-
"The Applicant submits that a resolution plan once approved, is binding on all the creditors and stakeholders, including the Central Government by virtue of Section 31(1) of the Code. The Respondent herein (original Appellant) ("the Appellant") would be an Operational Creditor within the meaning of Section 5(20) read with Section 5(21) of the Code and its entitlement would stand restricted to the treatment accorded under the approved resolution plan.
The Approval Order was challenged before Hon'ble the Supreme Court of India in in the Civil Appeal Nos. 630 - 634 of 2019, raising the same contentions that are raised by the Appellant in the present application.
The following questions of law, amongst others, were raised in the memo of Appeal:
"3. ......
(iii) Whether the Hon'ble NCLAT was justified in approving the Resolution Plan in which as per-Page 7 of 26 Downloaded on : Wed Jan 12 07:02:30 IST 2022
C/TAXAP/754/2007 IA ORDER DATED: 05/02/2021
(a) Para 6.5.2.13 "all litigations instituted against the Corporate debtor, initiated or arising and pending before the Transfer dated shall stand withdrawn, without any further act, instrument or deed"
(b) Para 6.2.3.5 (g) "no amount shall be payable for any liability of the Corporate debtor towards tax, fee, interest or penalty for which the assessment in respect of applicable tax laws have not been completed."
(c) Para 6.5.6 "other than the discharge of the Resolution amount towards the liabilities of the financial creditors, the operational creditors, contingent liabilities and the CIRP Costs, no other payments shall be made by the Corporate debtor for any liabilities of the Corporate debtor for the period till the transfer date."
4. Ground III (at Page 119 of Enclosure -A) of the Civil Appeal Nos. 630 - 634 of 2019 reads as under:
"III. THAT, the learned Tribunal ought to have appreciated that the Resolution Plan submitted by the respondent had been finalised in absentia as the Department was neither made a party in the Committee of Creditors not in the application filed before NCLT or NCLAT. The decision had been taken in complete violation of the principles of natural justice and Central Government revenue involving more than Rs. 144.96 Cr has been adversely affected without giving any opportunity of hearing to the Department. The finality attached to the Resolution Plan under section 31 of IBC, 2016 without considering the legitimate claim of the Department is against the principles of natural justice. The claim of the Department was reduced by the CoC which was duly approved by NCLT/NCLAT without giving an opportunity to justify their claim. The steps taken by the Page 8 of 26 Downloaded on : Wed Jan 12 07:02:30 IST 2022 C/TAXAP/754/2007 IA ORDER DATED: 05/02/2021 Resolution Professional/ CoC to verify only the limited claim of the Department in absentia is totally against the principles of natural justice and thus not legal and liable to be declared null and void. It is respectfully submitted that the following case laws have laid down the principle of Audi Alteram Partem, ......."
5. Hon'ble the Supreme Court vide order dated 24.1.2020 dismissed the said appeal by passing the following order:
"We do not find any reason to interfere with the impugned judgment dated 14.11.2018 passed by the National Company Law Appellate Tribunal, New Delhi.
Accordingly, the appeals are dismissed."
In the aforesaid facts and circumstances, the issues raised by the Appellant in this Application stood covered. Civil Appeal Nos. 630 - 634 of 2019 are statutory appeals and the order passed therein will lead to merger of the Approval Order and operates as res judicata.
6. During the course of hearing of this Application, the Revenue contended that (a) the Approved Plan cannot bind the Appellant since Section 31(1) of the Code, which was amended on 5.8.2019 w.e.f. 16.8.2019is prospective, (b) the Appellant cannot be said to be a contingent creditor since, in the facts of the present case, an assessment order was passed and (c) the claim of the Appellant will survive in light of the Judgment reported in 2020 SCC Online Jhar 454 in the matter of Electrosteel Steels Limited v/s State of Jharkhand.
7. It is submitted that all the above referred contentions are misconceived for the following Page 9 of 26 Downloaded on : Wed Jan 12 07:02:30 IST 2022 C/TAXAP/754/2007 IA ORDER DATED: 05/02/2021 reasons:
I. Section 31(1) of the Code amended w.e.f. 16.8.2019 is prospective and cannot be applied to the Approved Plan:
(a) Even before 16.8.2019 (i.e. prior to effective date of the amendment) a resolution plan duly approved was binding on the Central Government under Section 31(1) of the Code, since and when the government was a creditor of a corporate debtor. Prior to the amendment, Section 31 of the Code read as under:
"31.(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, guarantors and other stakeholders involved in the resolution plan"
(Emphasis Supplied)
(b) The amendment, therefore, make explicit what was already implicit in Section 31(1) of the Code and is clearly clarificatory in nature, and retrospective in its operation. This position is also made clear from the Statement of Objects and Reasons in respect of the amendment dated 5.8.2019 (Enclosure - B) placed before the Parliament, the relevant extract whereof reads as under:
Page 10 of 26 Downloaded on : Wed Jan 12 07:02:30 IST 2022C/TAXAP/754/2007 IA ORDER DATED: 05/02/2021 "(f) to amend sub-section (1) of section 31 of the Code to clarify that the resolution plan approved by the Adjudicating Authority shall also be binding on the Central Government, any State Government or any local authority to whom a debt in respect of payment of dues arising under law for the time being in force, such as authorities to whom statutory dues are owed, including tax authorities"
(Emphasis Supplied)
(c) Hon'ble Supreme Court in a judgment reported in 2018 (17) SCC 394 in the matter of State Bank of India v/s V. Ramakrishnan, (Enclosure - C) while construing the amendment Ordinance dated 6.8.2018, amending Section 14(3) of the Code, relying on recommendation given in the Report of the insolvency Law Committee for such amendment held that a clarificatory/ declaratory amendment would operate retrospectively.
II. The Appellant's dues ought to have been discharged in full since there was a final assessment.
(a) The term Operational Creditors is defined in Section 5(20) of the Code as under:
"operational creditor means a person to whom an operational debt is owned and includes any person to whom such debt has been legally assigned or transferred"
(b) The Appellant is, therefore, clearly an Operational Creditor under the provisions of the Code. In the fact of the present case, the claim Page 11 of 26 Downloaded on : Wed Jan 12 07:02:30 IST 2022 C/TAXAP/754/2007 IA ORDER DATED: 05/02/2021 of the Department would be, at best, a Contingent Liability, which term is defined in Clause 1.7.14 of the Approved Plan (Page no.
116) as under:
1.7.14 "Contingent Liability(ies)" means:
(a) Liabilities that be incurred by the Corporate Debtor depending on the outcome of a pending Litigation, lawsuit, claim or demand relating to the period prior to the Transfer Date;
(b) Any Liability towards transfer charges, stamp duty or registration fee arising in relation to corporate reorganizations or transfers of immovable property from predecessors - in-title to the Corporate Debtor relating to the period prior to the Transfer Date; and
(c) Any liability for tax, interest or penalty relating to the period prior to the Transfer Date for which the assessments have not been completed.
It is clarified that Contingent Liability(ies) do not include any guarantee issued by the Corporate Debtor. The details of Contingent Liabilities stipulated in (a) above as per the Information Memorandum and VDR is provided in Part E of Schedule 2 (read with Annexure 4 (Details of Contingent Liabilities) of this Resolution Plan;"
(c) The Appellant's claim is a claim that falls under sub clause (a) of Clause 1.7.14 of the Approved Plan. The assessment order, in the facts of the present case has become inconsequential, and cannot be said to be in operative at all, for the following reasons:
(i) On 1.9.2004, Superintendent of Customs Page 12 of 26 Downloaded on : Wed Jan 12 07:02:30 IST 2022 C/TAXAP/754/2007 IA ORDER DATED: 05/02/2021 finally assessed a bill of entry filed by Binani. On the same day, he also issued show cause cum demand notice for differential duty. (para 4 at page no. 39 of the Appeal)
(ii) The show cause cum demand notice was adjudicated by the Assistant Commissioner of Customs and the demand was dropped (Order in Original), against which an appeal was preferred to Commissioner of Customs (Appeals) by the Department (Para 2 at page 38 of the Appeal).
(iii) The Commissioner (Appeals) set aside the Order in Original on the ground that once the bills of entry are finally assessed and such assessment is not questioned, no demand can be raised as if the assessment is in review. (Para 6 at Page nos. 40-41 of the Appeal) (It is noteworthy that finalisation of bill of entry would mean that appropriate customs duty was paid by Binani.)
(iv) The order of Commissioner (Appeals) was carried in appeal before Hon'ble CESTAT, who vide Order dated 16.11.2006 remanded the matter to the Commissioner (Appeals) to decide the issue of merits, ignoring the Assessment of Bills of Entry (Para 4 at Page no. 45 of Appeal). This order is subject matter of challenge in the Appeal.
(v) Accordingly, duty under finalised assessment is already paid and there was neither a demand for payment of such duty nor can any claim exist for the same.
However, ignoring the final assessment, the Commissioner (Appeal) is to decide on Page 13 of 26 Downloaded on : Wed Jan 12 07:02:30 IST 2022 C/TAXAP/754/2007 IA ORDER DATED: 05/02/2021 the claim under the show cause cum demand notice. Such claim is yet to be adjudicated and is therefore not a crystallised amount. The same is clearly 'contingent' upon a decision in litigation, falling under Clause 1.7.14 read with Clause 4.3 of the Approved Plan. The Appellant's contention in the written submissions that on account of an order of assessment, its claim cannot be termed as a contingent liability is fallacious, contrary to record and wrong.
(d) Further, the Appellant clearly does not fall under Clause 4.2.1(Page no. 190) or clause4.2.2 (page No.190) of the Approved plan which pertain pertain to claims submitted to and verified by the Resolution Professional. Admittedly, the Appellant did not submit any claim to the Resolution Professional at the relevant time.
(e) Under Clause 6.2.3.6 of the Resolution Plan (Page no. 204), all contingent liabilities stand fully discharged without any payment in terms of the Resolution Plan.
(f0 Under Clause 6.2.4 of the Resolution Plan (Page no. 204), no amount either by way of principal or interest or penal interest or damages or any other amount is to be paid to any creditors in respect of any other liability not dealt with under the Resolution Plan. Further Clause 6.5.2.13 of the Approved Plan reads as under:
"6.5.2.13 Pursuant to this Resolution Plan, all Litigations instituted against the Corporate Debtor, initiated or arising and pending before the Transfer Date shall stand withdrawn, without any further act, instrument or deed. Any appeals or challenges in respect of Page 14 of 26 Downloaded on : Wed Jan 12 07:02:30 IST 2022 C/TAXAP/754/2007 IA ORDER DATED: 05/02/2021 such Litigations shall also stand withdrawn, without any further act, instrument or deed. It is clarified that all Litigations instituted by the Corporate Debtor, initiated or arising and pending before the Transfer Date shall continue. The Corporate Debtor shall file the suitable applications with the Relevant Authorities along with a copy of the order of the Adjudicating Authority and if required, the Resolution Plan to place on record such withdrawal of the relevant Litigations. It is clarified that the Contingent Liabilities including Liabilities in respect of the said Litigations will be NIL and there shall be no recourse against the Corporate Debtor or the Resolution Applicant in respect of the same;"
(Emphasis Supplied) The Appellant in paragraph no. 6 of its Affidavit in Reply dated 20.6.2020 admitted that it never lodged its claim before the Resolution Professional. Therefore, the Appellant is nothing but a contingent creditor and covered under Clause 4.3 read with 6.2.3.6 and 6.5.2.13 of the Resolution Plan. It is not entitled to anything on the basis of its understanding of 'contingent debt'.
(g) Without prejudice to the above, and considering that the Claim of the Appellant is clearly a 'contingent' claim / liability under the Approved Plan, and no payment under Part E to Schedule 2 (page no. 232) is proposed for contingent liabilities, its verification or otherwise by the Resolution Professional is inconsequential.
III. Reliance placed on the judgment reported Page 15 of 26 Downloaded on : Wed Jan 12 07:02:30 IST 2022 C/TAXAP/754/2007 IA ORDER DATED: 05/02/2021 in 2020 SCC Online Jhar 454 in the matter of Electrosteel Steels Limited v/s State of Jharkhand is misconceived.
(a) The reliance on the judgment of Electrosteel (Supra) is misplaced, misconceived and improper.
(b) It is submitted that under the provisions of Regulation 6 of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 ("the CIRP Regulations"), an Interim Resolution Professional ("IRP") appoint by the Adjudicating Authority on admission of a petition for initiating the CIRP in respect of the Corporate Debtor is required to issue a public announcement calling for claims in one English and one regional language newspaper having wide circulation at the location of the corporate office and principal office of the corporate debtor and at any other location where, in the opinion of the IRP, the corporate debtor carries on 'material business operations'. Such advertisement(s) were published in the facts of the present case. Under regulations 7, 8, 8A and 9 of the CIRP Regulations, different classes of creditors are to submit their claims to the IRP or the Resolution Professional ("RP"), as the case may be before the last date mentioned in the advertisement for submission of claims. By virtue of Regulation 12(2) of the CIRP Regulations, any creditor who omits to file its claim before the 90th day of the initiation of CIRP. The provisions of Regulation 6 and 12(2) of the CIRP Regulations read as under:
"6. Public announcement.
(1)An insolvency professional shall make a public announcement immediately on his appointment Page 16 of 26 Downloaded on : Wed Jan 12 07:02:30 IST 2022 C/TAXAP/754/2007 IA ORDER DATED: 05/02/2021 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 purpose, (ba) state where claim forms can be downloaded or obtained from, as the case may be;
(bb) offer choice of three insolvency professionals identified under regulation 4A to act as the authorised representative of creditors in each class; and]
(c) provide the last date for submission of proofs of claim, which shall be fourteen days from the date of appointment of the interim resolution professional.
Page 17 of 26 Downloaded on : Wed Jan 12 07:02:30 IST 2022C/TAXAP/754/2007 IA ORDER DATED: 05/02/2021 (3) The applicant shall bear the expenses of the public announcement which may be reimbursed by the committee to the extent it ratifies them."
"12(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."
(c) The Applicant submits that such action of publication and filing of claims are undertaken by the IRP or the RP much before a resolution applicant comes into the picture, which happens pursuant to publication of an Expression of Interest ("EOI") under Regulation 36A of the CIRP Regulations. Once the EOI is published, the IRP / RP issues an Information Memorandum and an Evaluation Matrix under Regulation 36B read with Regulation 36 of the CIRP Regulations, pursuant to which a resolution applicant submits a resolution plan. A resolution applicant, the Applicant in the present case, solely relies on the data made available to it by the IRP / RP, in respect of the Corporate Debtor, including the claims against it, in order to submit its resolution plan. The process prior to it is neither in the knowledge of nor controlled by a resolution applicant. A copy of the CIRP Regulations is at Enclosure - D."
10. Submissions on behalf of the Department;
Page 18 of 26 Downloaded on : Wed Jan 12 07:02:30 IST 2022C/TAXAP/754/2007 IA ORDER DATED: 05/02/2021 "The applicant has relied on Section 31(1) of the IBC, 2016 to contend that the resolution plan approved under the Code binds the Central Government and Local Authority thus the Appellant Department.
Section 31 of the Code reads as under:
"31. (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 under any law for the time being in force, such as authorities to whom statutory dues are owed], guarantors and other stakeholders involved in the resolution plan;"
The highlighted part of the section has been inserted has by Insolvency and Bankruptcy Code (Amendment) Act, 2019 (26 of 2019) dated 05.08.2019 Wef. 16.08.2019 vide SO 2953(E), dated 16.08.2019. The amendment vide IBC (Amendment) Act, 2019, has been promulgated to make the approved resolution plan binding on the Government Authorities in relation to the statutory dues. It is pursuant to this amendment that the rights of the Government Authorities for statutory dues were affected and such right was made subject to the approved resolution plan. The said amendment was made effective from 16.08.2019, which is prospective in nature, and no express retrospective effect was given to the said amendment. The said amendment takes away a substantive right of the Government Authorities in relation to the statutory dues and thus any interpretation, which shall give a retrospective effect to the said amendment, is Page 19 of 26 Downloaded on : Wed Jan 12 07:02:30 IST 2022 C/TAXAP/754/2007 IA ORDER DATED: 05/02/2021 uncalled for.
In the humble submission the effect of amendment was not an issue which was raised or in consideration before the Apex Court in the case of Committee of Creditors of Essar Steel India Limited (reported in 2019 SCC online SC 1478).
The resolution plan of the applicant has been approved by the CoC on 28.04.2018 whilst the amendment has come into effect on 16.08.2019. Therefore, the amended provision with its now extended width would not abate the claims / dues to the Department.
Without prejudice, admittedly, the final assessment has been made in respect of Bills Of Entry. Therefore, the dues thereto cannot be classified as Contingent Liability as defined in clause 1.7.14 (page 166) for it covers, any liability for tax, interest or penalty relating to the period prior to the transfer date for which the assessments have not been completed. The liability as per the final assessment cannot be brought under clause (a) for it covers liabilities other than Tax which are in litigation with the creditors. This clause may be view in conjunction with clause 6.2.3.2 which clearly provides that the corporate debtor is fully resolving the liabilities of the operational statutory creditors at the relevant resolution amount as distinguished from discharge provided for the operational trade creditors.
Regulation 36 provides,
36.(2)(a) assets and liabilities with such description, as on the insolvency commencement date, as are generally necessary for ascertaining their values. Explanation.--"Description" includes the details such Page 20 of 26 Downloaded on : Wed Jan 12 07:02:30 IST 2022 C/TAXAP/754/2007 IA ORDER DATED: 05/02/2021 as date of acquisition, cost of acquisition, remaining useful life, identification number, depreciation charged, book value, and any other relevant details.
(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) a list of creditors containing the names of creditors, the amounts claimed by them, the amount of their claims admitted and the security interest, if any, in respect of such claims;
(e) particulars of a debt due from or to the corporate debtor with respect to related parties;
(f) details of guarantees that have been given in relation to the debts of the corporate debtor by other persons, specifying which of the guarantors is a related party;
(g) the names and addresses of the members or partners holding at least one per cent stake in the corporate debtor along with the size of stake;
(h) details of all material litigation and an ongoing investigation or proceeding initiated by Government and statutory authorities; (I) the number of workers and employees and liabilities of the corporate debtor towards them;
(j)-(k)***
(l) other information, which the resolution professional deems relevant to the committee.
The final assessment and present litigation was on record of M/s Binani inasmuch as the resolution professional shall have provided the information of the final assessment and present litigation to the resolution applicant as also ascertained by the applicant from the information memorandum and Page 21 of 26 Downloaded on : Wed Jan 12 07:02:30 IST 2022 C/TAXAP/754/2007 IA ORDER DATED: 05/02/2021 VDR (Clause 4.2.2 @ 190), thus taking in fold such liability the Resolution Applicant has provided that the corporate debtor shall be fully resolving the liabilities of the operational statutory creditors at the relevant resolution amount (Clause 6.2.3.2) in the Resolution Plan. The application of the applicant is conspicuously silent on the aspects, for it shall have to discharge the liability as per the final assessment since provided in Clause 6.2.3.2. The present dues and litigation cannot be contended as a hydra head popping up which has been not evaluated by a prospective resolution applicant prior to submission of the Plan.
The resolution plan provides that upon discharge and payment of the resolution amount as per the terms of the resolution plan all claims and dues towards the operational creditors shall be fully settled and none of the creditors shall have recourse against the corporate debtor and pursuant to such discharge all litigations instituted against the corporate debtor shall have to be withdrawn. Therefore, unless the dues as per the final assessment to the Operational Statutory Creditor I.e. Appellant department is paid in full as provided in Clause 6.2.3.2, the said provisions of resolution plan would not mandate withdrawal / disposal of the Appeal."
ANALYSIS
11. We are of the view that once a resolution plan is approved, all the claimants in respect of a corporate debtor are dealt with under such plan as held by the Supreme Court in the case of Committee of Creditors of Essar Steel India Ltd. vs. Satisk Kumar Gupta & Ors., reported in 2020 (8) SCC 531. We quote the relevant observations as contained in Paras-105 and 107 respectively;
"105. Section 31(1) of the Code makes it clear Page 22 of 26 Downloaded on : Wed Jan 12 07:02:30 IST 2022 C/TAXAP/754/2007 IA ORDER DATED: 05/02/2021 that once a resolution plan is approved by the Committee of Creditors it shall be binding on all the stakeholders, including the guarantors. This is for the reasons that this provision ensure that the successful resolution applicant starts running the business of the corporate debtor on a fresh slate as it were. ...."
107 For the same reason, the impugned NCLAT judgment in holding that claims that may exist apart from those decided on merits by the resolution profession and by the Adjudicating Authority / Appellate Tribunal can now be decided by an appropriate forum in terms of Section 60(6) of the Code, also militates against the rationale of Section 31 of the Code. A successful resolution applicant cannot suddenly by faced with "undecided" claims after the resolution plan submitted by him has been accepted as this would amount to a hydra head popping up which throw into uncertainty amounts payable by a prospective resolution applicant who would successfully take over the business of the corporate debtor. All claims must be submitted to and decided by the resolution professional so that a prospective resolution applicant knows exactly what is to be paid in order that it may then take over and run the business of the corporate debtor. This the successful resolution applicant does on a fresh slate as has been pointed out by us hereinabove......"
(Emphasis Supplied)
12. In our opinion, the judgment of the Jharkhand High Court in the case of Essar Steel Limited (Supra) is of no avail to the Department for the following reasons;
(i) In Electrosteel (supra) the matter pertained to the amount recovered by an assessee from its customers, which were not considered by the Resolution Professional Page 23 of 26 Downloaded on : Wed Jan 12 07:02:30 IST 2022 C/TAXAP/754/2007 IA ORDER DATED: 05/02/2021 while verifying the claims. In the facts of the present case since
(a) since there was a final assessment, the Corporate Debtor would necessarily have paid the duty;
(b) the demand against the Corporate Debtor was raised independent of the assessment and was dropped by the Assistant Commissioner and such dropping of the demand was confirmed by the Commissioner (Appeals);
(c) The CESTAT remanded the matter to the Commissioner (Appeals) to ignore the assessment and decide the demand on merits. Such adjudication has not taken place.
In the circumstances, Electrosteel (supra) is distinguishable on facts as it proceeded on its peculiar facts pertaining to the criminal misappropriation of the statutory dues and cannot be made applicable to the facts of present case.
(d) Further, in Electrosteel (supra), the Registered office and principal place of business of the corporate debtor therein was in the State of Jharkhand. However, the public announcement was not published in any newspaper of Jharkhand but was published in the Business Standard, Kolkata Edition. The relevant extract of Paragraph no. 18 of Electrosteel (supra) reads as under:
Page 24 of 26 Downloaded on : Wed Jan 12 07:02:30 IST 2022C/TAXAP/754/2007 IA ORDER DATED: 05/02/2021
18...... It is submitted that the State Government was never involved in the resolution process and there was a valid reason for the same, in asmuchas, the notice required to be issued under Section 13 of the IB Code, which ought to have been issued in the State of Jharkhand, where the petitioner Company is having its registered office as well as principal place of business, but the said notice was never published in the State of Jharkhand, rather the notice which has been brought on record as Annexure - 7 to the supplementary affidavit filed by the petitioner, clearly shows that it was published only in Kolkata Edition of Business Standard on 24.07.2017....."
(Emphasis Supplied)
(e) It is on the aforesaid finding on facts, that the Jharkhand High Court in the Paragraphs Nos. 27 and 28 respectively of Electrosteel (supra) found that the Commercial Tax department had no opportunity to participate in the CIRP process and rejected the writ petition challenging the garnishee orders issued by the Jharkhand Commercial Tax department.
(f) In the facts of the present case, the public announcements were published by the IRP / RP in accordance with the Regulation 6 of the CIRP Regulations.
13. In the last, we may note that the Hon'ble Supreme Court dismissed the Civil Appeals Nos.630-634 respectively and thereby the challenge to the approved plan failed. We are of the view that it is not open to the Department to, once again, Page 25 of 26 Downloaded on : Wed Jan 12 07:02:30 IST 2022 C/TAXAP/754/2007 IA ORDER DATED: 05/02/2021 raise the issue by taking shelter of Electro Steel (Supra).
14. For all the foregoing reasons, the civil application succeeds and is hereby allowed, and consequently the Tax Appeal No.754 of 2007 is disposed of accordingly.
(J. B. PARDIWALA, J) (ILESH J. VORA,J) Vahid Page 26 of 26 Downloaded on : Wed Jan 12 07:02:30 IST 2022