Facts of the case; Bank of Baroda initiated insolvency proceedings against Binani Cement (Now known as Ultra Tech Nathdwara Cement Ltd). The petitioner company was one of the resolution applicants in the CIRP and the resolution plan submitted by Ultra Tech was approved unanimously in the CoC Meeting. The resolution plan was approved by the NCLAT vide order dated 14.11.2018. The Bank of Baroda being a financial creditor challenged the resolution plan affirmed by the NCLAT before Hon'ble the Supreme Court which affirmed the order of the NCLAT vide order dated 19.11.2018. The respondents (GST Dept.) Herein have raised numerous demands from the petitioner for the period from April 2012 to June 2017 and interest upto 25.07.2017. Hence the petition.
Excerpts of the order;
The writ petitioner Ultra Tech Nathdwara Cement Ltd. has approached this Court by way of the instant writ petition being aggrieved of the demands raised vide notice dated 11.2.2019 (Annex.10), letter dated 7.9.2018 (Annex.11), order dated 20.3.2019 (Annex.12), notice dated 6.3.2019 (Annex.13), notice dated 8.3.2019 (Annex.14), notice dated 29.3.2019 (Annex.15), notice dated 29.3.2019 (Annex.16), notice dated 10.4.2019 (Annex.18), order dated 9.4.2019 (Annex.19), two notices dated 11.6.2019 (Annex.20) issued by the respondent Central Goods and Service Tax Department, Govt. of India whereby the petitioner was called upon to pay Goods and Service Tax (G.S.T.) for the period before it took over a company named M/s.Binani Cements Ltd. A restraint order is also sought for against the respondents from raising any further demands or from proceeding with any coercive steps so far as dues incurred in relation to the period prior to the transfer date on which the petitioner took over the company M/s Binani Cements in proceedings under the Insolvency Bankruptcy Code 2016 (hereinafter to be referred to as ‘IBC’ for brevity).
Despite the resolution plan having attained finality and having been executed, the respondents herein have raised numerous demands from the petitioner for the period from April 2012 to June 2017 and interest upto 25.7.2017. Having made the full and final payment as proposed by the resolution professional, the petitioner addressed a letter dated 26.11.2018 to the respondents informing them of the payment of dues as admitted by the CIRP and reminded them that all remaining claims and proceedings stood extinguished in terms of the resolution plan. Having failed to get any positive response from the respondents, the petitioner company has approached this Court through this writ petition under Article 226 of the Constitution of India seeking the relief referred to supra.
We have given our thoughtful consideration to the arguments advanced at the bar and have gone through the material available on record and the impugned notices.
It cannot be gainsaid that the controversy at hand hovers around the simple issue as to whether the resolution plan approved by the COC is binding on the department or not. In this regard, it is trite to note that as per the amended Section 31 of the IBC referred to supra, the Central Govt., State Govt. or any other local authority to whom, a debt in respect of payment of dues arising under any law for the time being in force are owed, have been brought under the umbrella of the resolution plan approved by the adjudicating officer which has been made binding on such governments and local authorities. The purpose of the IBC is salutary as it has been enacted to ensure that an industry under distress does not fade into oblivion and can be revived by virtue of the resolution plan. Once the offer of the resolution applicant is accepted and the resolution plan is approved by the appropriate authority, the same is binding on all concerned to whom the industry concern may be having statutory dues. No right of audience is given in the resolution proceedings to the operational creditors viz. the Central Govt. or the State Govt. as the case may be.
The reply given by Hon’ble the Finance Minister (referred to supra) emphatically conveys that the revival of the dying industry is of primacy and to secure this objective, the government would be ready to sacrifice, leaving its interest finally in the hands of the resolution professional and the COC as the case may be. Precedence in the Scheme of the Act is given to secure the interest of the financial creditors. On this aspect of the matter, the following extracts ere referred to in the case of Essar Steel:
“Thus, what is left to the majority decision of the Committee of Creditors is the "feasibility and viability" of a resolution plan, which obviously takes into account all aspects of the plan, including the manner of distribution of funds among the various classes of creditors. As an example, take the case of a resolution plan which does not provide for payment of electricity dues. It is certainly open to the Committee of Creditors to suggest a modification to the prospective resolution Applicant to the effect that such dues ought to be paid in full, so that the carrying on of the business of the corporate debtor does not become impossible for want of a most basic and essential element for the carrying on of such business, namely, electricity. This may, in turn, be accepted by the resolution Applicant with a consequent modification as to distribution of funds, payment being provided to a certain type of operational creditor, namely, the electricity distribution company, out of upfront payment offered by the proposed resolution Applicant which may also result in a consequent reduction of amounts payable to other financial and operational creditors. What is important is that it is the commercial wisdom of this majority of creditors which is to determine, through negotiation with the prospective resolution applicant, as to how and in what manner the corporate resolution process is to take place.
66. Section 31(1) of the Code makes it clear that once a resolution plan is approved by the Committee of Creditors it shall be binding on all stakeholders, including guarantors. This is for the reason that this provision ensures that the successful resolution Applicant starts running the business of the corporate debtor on a fresh slate as it were.
67. For the same reason, the impugned NCLAT judgment in holding that claims that may exist apart from those decided on merits by the resolution professional 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 be 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 would throw into uncertainty amounts payable by a prospective resolution Applicant who successfully take over the business of the corporate All claims must be submitted to and decided by the resolution professional so that a prospective resolution Applicant knows exactly what has 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. For these reasons, the NCLAT judgment must also be set aside on this count.”
The courts are given an extremely limited power of judicial review into the resolution plan duly approved by the COC. In the case at hand, the situation has proceeded much further. The operational creditors i.e. the Commercial Taxes Department of Govt. of Rajasthan as well as the respondent Commissioner of Goods and Service Tax assailed the resolution plan by filing appeals before Hon’ble the Supreme Court with a specific plea that their dues have not been accounted for by the COC in the resolution plan. The objection so raised stands repelled with the rejection of the appeals by Hon'ble The Supreme Court. In addition thereto, it may be mentioned here that from the two possible situations; one being liquidation and the other being revival, the respondents will gain significantly in the later because as per the assessed liquidity value, their dues have been assessed as nil, whereas as per the resolution plan with revival of the industry at the instance of the resolution applicant (the petitioner company herein), their rights have been secured to the extent of Rs.72 crores odd. It may be emphasized here that the amount of Rs.72 crores assessed by the resolution professional in favour of the respondent GST Department has already been deposited by the successful resolution applicant i.e. the petitioner company.
Therefore, we are of the firm opinion 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. Accordingly, the impugned demand notices and orders viz. notice dated 11.2.2019 (Annex.10), letter dated 7.9.2018 (Annex.11), order dated 20.3.2019 (Annex.12), notice dated 6.3.2019 (Annex.13), notice dated 8.3.2019 (Annex.14), notice dated 29.3.2019 (Annex.15), notice dated 29.3.2019 (Annex.16), notice dated 10.4.2019 (Annex.18), order dated 9.4.2019 (Annex.19), two notices dated 11.6.2019 (Annex.20) and any further demands pending as on the date of finalization of the resolution plan issued/raised by the respondents Central Goods and Service Tax Department, Govt. of India are quashed and struck down
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