HC Calcutta (29.01.2021) in Kolkata Municipal Corporation & Anr. Vs. Union of India & Ors.[WPA No.977 of 2020] held that;
Whether the property-in-question, having been seized by the KMC in recovery of its statutory claims against the debtor, can be the subject matter of a Corporate Resolution Process under the Insolvency and Bankruptcy Code, 2016.?
The proposition laid down in Commissioner of Income Tax vs. Monnet Ispat of Energy Ltd. [Special Leave to Appeal (C) No. (S) 6483 of 2018], that income tax dues, being in the nature of crown debts do not take precedence even over secured creditors, holds true in the present case as well. The claim of the KMC, being in the nature of crown debts, cannot gain precedence over other secured creditors, as contemplated in the IBC.
Thus, in the light of Embassy Property (supra), the finalized claim of the KMC can very well be the subject-matter of a Corporate Resolution Process under the IBC.
Hence, question no. (ii), as posed above, is also answered in the affirmative and against the writ petitioner.
Excerpts of the order;
# 1. The Kolkata Municipal Corporation (KMC), a statutory authority under the Kolkata Municipal Corporation Act, 1980 (hereinafter referred to as “1980 Act”), has filed the present writ petition challenging an Order dated December 17, 2019 passed by the National Company Law Tribunal (NCLT), acting as Adjudicating Authority under the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as the IBC”) for handing over physical possession of the office premises at 127A, Sarat Bose Road, Kolkata – 700 026.
# 2. The KMC, in exercise of its authority under Sections 217-220 of the 1980 Act, had distrained the said property in recovery of municipal tax dues from an assessee.
# 3. Subsequently, the debt of the assessee came within the purview of Corporate Insolvency Resolution Process (CIRP), thus prompting respondent no.4, the Resolution Professional, representing the owner of the asset, to approach the NCLT for handing over of such physical possession of the property-in-question from the KMC. Such action gave rise to the present writ petition.
# 4. Learned senior counsel appearing for the petitioner, by relying on the 1980 Act, submits that the KMC is a statutory authority and, as such, took possession of the asset in exercise of its statutory powers. Such independent statutory exercise, it is argued, cannot be interdicted by the NCLT within the scope of the IBC.
# 5. It is argued, by placing reliance on Embassy Property Developments Put. Ltd. vs. State of Karnataka and others, reported at 2019 SCC OnLine SC 1542, that the powers of the NCLT, as Adjudicating Authority under Section 60 of the IBC, are circumscribed by the authority of the interim resolution professional, as contemplated in Section 18(f) of the IBC. In terms of Clause f(vi) of Section 18(1) of the IBC, it is contended by the petitioner, the control and custody of any asset to be taken by the interim resolution professional has to be subject to the determination of ownership by a court or authority. Since, in the present case, the writ petitioner is a statutory authority, the determination of ownership, by virtue of taking possession and subsequent attachment and sale of the property, falls within the exclusive domain of the writ petitioner. The exercise of power by the interim resolution professional has to be subject to such authority, it is argued.
# 6. Learned senior counsel further argues that, as held in Embassy Property (supra), the writ jurisdiction of this court under Article 226 of the Constitution can be invoked despite the availability of an alternative remedy, since the nature of the challenge pertains to lack of jurisdiction of the NCLT and not merely wrongful exercise of any available jurisdiction.
# 13. Paragraph no. 37 of Embassy Property (supra), it is argued, clearly indicates that a decision taken by a Government or a statutory authority in relation to a matter which is in the realm of public law cannot be brought within the fold of the expression “arising out of or in relation to the insolvency resolution", appearing in Section 60(5) of IBC, 2016. The Supreme Court created a distinction between proceedings which had attained finality, fastening a liability upon the corporate debtor, and other matters. Keeping in mind the said distinction, learned counsel for respondent no.3 argues, a distinction has to be drawn between matters which are relevant for the purpose of CIRP on the issue of debt or of property of the company and other matters; all other issues would be beyond the jurisdiction of the Tribunal. Likewise, even if it is within the jurisdiction of the NCLT, a distinction must be drawn between matters which have a direct bearing on the CIRP, that is, directly pertaining to debt or property of the corporate debtor, and other matters. Adjudicatory jurisdiction of other courts or Tribunals cannot be transgressed upon. However, in the present case, the question involved directly relates to the property of the company and falls within the jurisdiction of the NCLT.
# 14. Moreover, the petitioner in the present case is an operational creditor. The previous exalted status of a statutory creditor has now been removed. There is no primacy of statutory or crown debts.
# 15. That apart, learned counsel argues, the writ petitioner itself submitted to the jurisdiction of the NCLT by lodging its claim. As such, the petitioner cannot now contend that its attachment for recovery of claim remains outside the jurisdiction of the NCLT.
# 22. Learned counsel appearing for respondent no.4 argues that there is no distinction between statutory and operational debts. Even statutory dues/crown debts are considered as operational debt, as envisaged in Section 5(21) of the IBC.
# 23. Learned counsel submits that the interim resolution professional has certain duties to perform, as envisaged under Section 18 of the IBC. Section 18(1)(f), Clauses (i), (ii) and (vi) of the IBC indicate that the IRP has to take control and custody of assets over which the corporate debtor has ownership rights, which may or may not be in possession of the corporate debtor, or any asset subject to determination of ownership by a court or authority. Section 25(1) and Section 25(2)(b) of the IBC deals with the duties of the resolution professional.
# 24. Section 36 of the IBC is relied on for the proposition that the assets attached by the writ petitioner, which are now under liquidation, have to be dealt with as per the mechanism provided under the IBC. The writ petitioner has only attached the asset of the corporate debtor and is in possession thereof. The assets have not been sold, thus retaining ownership of the asset with the corporate debtor. Particular reliance is placed on Section 36(3), Clauses (a) and (b) of the IBC for the proposition that the asset attached by the KMC will form part of the liquidation estate.
# 25. A resolution plan, if received, must provide for payment to the operational creditors in terms of Section 30(2)(b) of the IBC. An approved resolution plan shall be binding on the Central and State Governments and the Local Authorities under Section 31(1) of the IBC. Since the writ petitioner has already filed its claim during the IRP and in the liquidation proceeding, it will have to wait for the outcome of the process and the distribution of the assets in terms of Section 53 of the IBC. The judgment rendered in Committee of Creditors of Essar Steel India Limited vs. Satish Kumar Gupta and others, reported at (2020) 8 SCC 531 is relied on in such context.
# 26. Respondent no.4 also relies on the judgment rendered in Commissioner of Income Tax vs. Monnet Ispat and Energy Ltd. [Special Leave to Appeal (C) No. (S) 6483 of 2018) for the proposition that income tax dues, being in the nature of crown debts, do not take precedence even over secured creditors who are private persons. Thus, in the case at hand, the petitioner cannot argue that their debt, which is in the nature of crown debt, will take precedence over the other debts.
# 30. The two questions which arise in the matter are:
# 31. Whether the writ jurisdiction of this court under Article 226 of the Constitution of India can be invoked in the matter, despite the availability of an alternative remedy; and
# 32. Whether the property-in-question, having been seized by the KMC in recovery of its statutory claims against the debtor, can be the subject matter of a Corporate Resolution Process under the Insolvency and Bankruptcy Code, 2016.
# 33. In order to resolve the first question, we merely have to look to the ratio of Embassy Property (supra), as laid down in paragraph no. 4 of the said report. The Supreme Court held therein that, in so far as the question of exercise of the power conferred by Article 226, despite the availability of a statutory alternative remedy, is concerned, the distinction between lack of jurisdiction and the wrongful exercise of the available jurisdiction, should certainly be taken into account by High Courts, when Article 226 is sought to be invoked bypassing a statutory alternative remedy provided by a special statute.
# 34. In the present case, the petitioners have urged that the NCLT and the Resolution Professional have no jurisdiction to take control and custody of any asset except as subject to the determination of ownership by a court or authority. The KMC, which is a statutory authority, exercised its powers under Sections 217 to 220 of the 1980 Act to distraint the asset of the debtor and to attach the property, to be followed by sale in future. Such exercise of power, it is argued, is beyond the purview of the IBC and does not come within the ambit of the powers conferred on the Resolution Professional or the NCLT by the IBC. As such, the Resolution Professional and the NCLT acted de hors their statutory powers in seeking to take control and custody of the asset.
# 35. Hence, the nature of challenge thrown in the writ petition is on the ground of absence of jurisdiction and not wrongful exercise of the available jurisdiction', thus bringing it within the fold of Article 226 of the Constitution. In such a scenario, the present writ petition is maintainable.
# 38. As such, a combined reading of the aforesaid propositions, as laid down in the various judgments, boil down to the ratio that, although a wrongful exercise of available jurisdiction would not be sufficient to invoke the High Court's jurisdiction under Article 226 of the Constitution, the ground of absence of jurisdiction could trigger such invocation. Hence, in view of the nature of challenge involved in the present writ petition, the same is maintainable in law.
# 39. Question (i), posed above, is thus decided in the affirmative.
# 42. Again, the Supreme Court found, if NCLT has been conferred with jurisdiction to decide all types of claims to property of the corporate debtor, Section 18(1)(vi) of the IBC would not have made the task of the interim resolution professional in taking control and custody of an asset over which the corporate debtor has ownership rights, subject to the determination of ownership by a court or other authority.
# 43. There cannot be any doubt about the proposition that the contours of the powers conferred on the Adjudicating Authority, being the NCLT, under Section 60 of the IBC, are defined by the duties of the interim resolution professional under Section 18. The language of Section 18 (1) (f)(vi), however, leaves scope for two different interpretations of such duties. From one perspective, the phrase "assets subject to the determination of ownership by a court of authority", as prescribed in sub-clause (vi), qualifies the expression "assets” in the first paragraph of clause (f), that is, the interim resolution professional can take control and custody of any asset, including assets which are subject to the determination of ownership by a court or authority. From the second viewpoint, the expression "assets subject to the determination of ownership by a court of authority” pertain to the phrase "take control and custody", used at the beginning of clause (1) of sub section (1) of Section 18. In Embassy Property (supra), the second interpretation was accepted, indicating that the power of the resolution professional to take control of any asset, itself, is subject to the determination of ownership by a court or authority. In view of such interpretation by the Supreme Court, this court is bound by it and there is no further scope of dwelling on the question as to which of the two interpretations ought to be applied.
# 44. Thus being the situation, what is to be seen to examine the charter of the interim resolution professional is whether the assets, of which control and custody is sought to be taken by the professional, are sub judice before a court or authority for the purpose of “determination of ownership" thereof.
# 45. The writ petitioner proceeded with acquiring possession of the property-in-question and putting up the same for attachment under its powers as flowing from Sections 217-220 of the 1980 Act. The said provisions envisage a situation where an amount of tax, for which a bill has been presented under Section 216 of the Act, is not paid within thirty days from the presentation thereof. In such event, the Municipal Commissioner may cause a notice of demand to be served on the person liable for payment. On non-payment of such tax, the petitioner is empowered under Section 219 of the 1980 Act to issue a distress warrant, for distraint of the property. The person charged with the execution of the warrant shall, in the presence of two witnesses, make an inventory of the property which he seizes under such warrant. Thereafter, steps are taken for disposal of such property, including attachment and sale.
# 46. Such action follows from non-payment of tax and the cause of action arises upon presentation of a bill under Section 216 of the 1980 Act. After non-payment on the bill, there is no further scope for determination of the ownership of the property by the writ petitioner under the 1980 Act. The procedure, as laid down in Sections 217 - 220, automatically follow.
# 47. In the present case, the Corporation followed such procedure and took possession of the disputed property for non-payment of tax. Thus, there was no further scope for any "determination" of ownership of the property by the KMC. As such, there arose no question of the task of the interim resolution professional, in taking control and custody of the asset, being subject to the determination of ownership by any authority, as contemplated under Section 18(1)(vi) of the IBC. Rather, the claim of the KMC, in the absence of any successful challenge thereto, attained finality, fastening a liability upon the corporate debtor. As per the interpretation in Embassy Property (supra), such a finalized claim would come within the purview of “operational debt" under Section 5(21) of the IBC. Hence, the Resolution Professional has jurisdiction to take custody and control of the same.
# 48. As discussed earlier, the parameters of powers of the NCLT, as an Adjudicating Authority under Section 60 of the IBC, is defined and circumscribed by the scope of Section 18(1)(vi) of the IBC. Such exercise of power would fall within the ambit of the expression "arising out of or in relation to the insolvency resolution”, as envisaged in Section 60(5)(c) of the IBC.
# 49. The proposition laid down in Commissioner of Income Tax vs. Monnet Ispat of Energy Ltd. [Special Leave to Appeal (C) No. (S) 6483 of 2018], that income tax dues, being in the nature of crown debts do not take precedence even over secured creditors, holds true in the present case as well. The claim of the KMC, being in the nature of crown debts, cannot gain precedence over other secured creditors, as contemplated in the IBC.
# 50. Thus, in the light of Embassy Property (supra), the finalized claim of the KMC can very well be the subject-matter of a Corporate Resolution Process under the IBC.
# 51. Hence, question no. (ii), as posed above, is also answered in the affirmative and against the writ petitioner.
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