HC Karnataka (27.05.2021) in Union of India Vs Ruchi Soya Industries Ltd [Writ Appeal No. 2575/ 2018 (T-TAR) ] held that;
# 75. . . . . . .As such, if the resolution plan approved by the National Company Law Tribunal (for short NCLT), does not comprise all the claims of the Central / State Governments or the local authority, the said claim shall stand extinguished and the proceedings relating thereto shall stand terminated. Hence, the Hon’ble Supreme Court held that with regard to any claim prior to the approval of the resolution plan cannot be continued and would stand extinguished, if not made a part of the plan. Thus, claims which are not part of the resolution plan, shall stand extinguished.
# 77. . . . . . Further, it is noted that crown debts do not take precedence even over secured creditors, who are private persons. This is clear on a reading of Section 238 of “IBC” which provides for the overriding effect of “IBC” notwithstanding anything inconsistent contained in other law for the time being in force or effect by any such law. Therefore, if the departments of Central or State Governments do not file an application or participate in the resolution process, their claims automatically get extinguished having regard to the judgment of the Hon’ble Supreme Court in the case of Ghanashym Mishra.
Excerpts of the order;
This appeal is listed to consider IA No.1/2021 seeking dismissal of the appeal on the basis of Section 31 of the Insolvency and Bankruptcy Code, 2016 (“IBC” for the sake of convenience) and on the basis of the latest judgment of the Hon’ble Supreme Court in the case of Ghanashyam Mishra and Sons Private Limited through the Authorized Signatory vs. Edelweiss Asset Reconstruction Company Limited through the Director [2021 SCC Online SC 313] (Ghanashyam Mishra) to the effect that the claim of the Revenue as well as the liability of the respondent has stood extinguished permanently. But, with consent of learned counsel on both sides, it is heard finally.
# 2. This appeal is filed by the Union of India, the Commissioner and deputy Commissioner of Customs, being aggrieved by the order of the learned ingle Judge dated 06.03.2018 passed in writ petition No.41394/2015. In that petition, respondent herein had sought a declaration that the reassessment of the subject goods imported by the respondent on 17.09.2015 and demanding the higher rate of duty of 12.5% for clearance of the subject goods was illegal. The learned Single Judge, accepted the contentions of the respondent-importer and quashed Annexures – W, X, Y and Z and held that the respondent herein was liable to pay duty only at 7.5% based on Notification No.12/2012-Cus. dated 17.03.2012. Consequently, the differential duty as per Notification No.46/2015-Cus. dated 17.09.2015 at the rate of 12.5% was not applicable to the respondent herein.
# 3. Succinctly stated, the facts are, the respondent herein is a public limited Company registered under the provisions of the Companies Act, 1956. According to the respondent, it entered into a contract on 27.07.2015 with ‘M/s.Aavanti Industries Private Limited, Singapore,’ for import of 10,000 Metric Tons (MTs.) of Crude Palm Oil of Edible Grade in bulk, as per the terms and conditions stipulated in the contract. The vessel carrying the aforesaid imported item arrived at Mangalore Port on 17.09.2015 around 1600 hours. The respondent herein had filed four bills of entry bearing Nos.2619662, 2619678, 2619680 and 2619708, dated 16.09.2015, seeking clearance of the subject goods for home consumption. According to the respondent herein, as per Notification No.12/2012-Cus. dated 17.03.2012, it was liable to pay duty at 7.5%. That the four bills of entry stipulating duty at 7.5% were assessed on 16.09.2015 and the respondent herein was required to deposit duty of Rs.2,64,95,907/- in terms of bills of entry and TR-6 challans generated by Electronic Data Interchange (EDI) Service Centre, Mangalore.
# 74. We find that the said contention of the learned counsel for the respondent is in consonance with what has been opined recently by the Hon’ble Supreme Court in Ghanashyam Mishra, on which judgment, the respondent has placed heavy reliance. The relevant paragraphs of the aforesaid judgment are extracted for immediate reference:
“58. Bare reading of Section 31 of the I&B Code would also make it abundantly clear, that once the resolution plan is approved by the Adjudicating Authority, after it is satisfied, that the resolution plan as approved by CoC meets the requirements as referred to in sub-section (2) of Section 30, it shall be binding on the Corporate Debtor and its employees, members, creditors, guarantors and other stakeholders. Such a provision is necessitated since one of the dominant purposes of the I&B Code is, revival of the Corporate Debtor and to make it a running concern.
59. The resolution plan submitted by successful resolution applicant is required to contain various provisions, viz., provision for payment of insolvency resolution process costs, provision for payment of debts of operational creditors, 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 creditors, if the amount to be distributed under the resolution plan had been distributed in accordance with the order of priority 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 subsection (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 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.
60. Perusal of Section 29 of the I&B Code read with Regulation 36 of the Regulations would reveal, that it requires RP to prepare an information memorandum containing various details of the Corporate Debtor so that the resolution applicant submitting a plan is aware of the assets and liabilities of the Corporate Debtor, including the details about the creditors and the amounts claimed by them. It is also required to contain the details of guarantees that have been given in relation to the debts of the corporate debtor by other persons. The details with regard to all material litigation and an ongoing investigation or proceeding initiated by Government and statutory authorities are also required to be contained in the information memorandum. So also the details regarding the number of workers and employees and liabilities of the Corporate Debtor towards them are required to be contained in the information memorandum.
61. All these details are required to be contained in the information memorandum so that the resolution applicant is aware, as to what are the liabilities, that he may have to face and provide for a plan, which apart from satisfying a part of such liabilities would also ensure, that the Corporate Debtor is revived and made a running establishment. The legislative intent of making the resolution plan binding on all the stake-holders after it gets the seal of approval from the Adjudicating Authority upon its satisfaction, that the resolution plan approved by CoC meets the requirement as referred to in sub-section (2) of Section 30 is, that after the approval of the resolution plan, no surprise claims should be flung on the successful resolution applicant. The dominant purpose is, that he should start with fresh slate on the basis of the resolution plan approved.
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66. Vide Section 7 of Act No. 26 of 2019 (vide S.O. 2953(E), dated 16.8.2019 w.e.f. 16.8.2019), the following words have been inserted in Section 31 of the I&B Code. “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”
67. As such, with respect to the proceedings, which arise after 16.8.2019, there will be no difficulty. After the amendment, any debt in respect of the payment of dues arising under any law for the time being in force including the ones owed to the Central Government, any State Government or any local authority, which does not form a part of the approved resolution plan, shall stand extinguished.
68. The only question, which remains is, what happens to such dues if they pertain to a period wherein Section 7 petitions have been admitted prior to 16.8.2019.
69. To answer the said question, we will have to consider, as to whether the said amendment is clarificatory/declaratory in nature or a substantive one. If it is held, that it is declaratory or clarificatory in nature, it will have to be held, that such an amendment is retrospective in nature and exists on the statute book since inception. However, if the answer is otherwise, the amendment will have to be held to be prospective in nature, having force from the date on which the amendment is effected in the statute.
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77. It is clear, that the mischief, which was noticed prior to amendment of Section 31 of I&B Code was, that though the legislative intent was to extinguish all such debts owed to the Central Government, any State Government or any local authority, including the tax authorities once an approval was granted to the resolution plan by NCLT; on account of there being some ambiguity, the State/Central Government authorities continued with the proceedings in respect of the debts owed to them. In order to remedy the said mischief, the legislature thought it appropriate to clarify the position, that once such a resolution plan was approved by the Adjudicating Authority, all such claims/dues owed to the State/Central Government or any local authority including tax authorities, which were not part of the resolution plan shall stand extinguished.
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86. As discussed hereinabove, one of the principal objects of I&B Code is, providing for revival of the Corporate Debtor and to make it a going concern. I&B Code is a complete Code in itself. Upon admission of petition under Section 7, there are various important duties and functions entrusted to RP and CoC. RP is required to issue a publication inviting claims from all the stakeholders. He is required to collate the said information and submit necessary details in the information memorandum. The resolution applicants submit their plans on the basis of the details provided in the information memorandum. The resolution plans undergo deep scrutiny by RP as well as CoC. In the negotiations that may be held between CoC and the resolution applicant, various modifications may be made so as to ensure, that while paying part of the dues of financial creditors as well as operational creditors and other stakeholders, the Corporate Debtor is revived and is made an on-going concern. After CoC approves the plan, the Adjudicating Authority is required to arrive at a subjective satisfaction, that the plan conforms to the requirements as are provided in sub-section (2) of Section 30 of the I&B Code. Only thereafter, the Adjudicating Authority can grant its approval to the plan. It is at this stage, that the plan becomes binding on Corporate Debtor, its employees, members, creditors, guarantors and other stakeholders involved in the resolution Plan. The legislative intent behind this is, to freeze all the claims so that the resolution applicant starts on a clean slate and is not flung with any surprise claims. If that is permitted, the very calculations on the basis of which the resolution applicant submits its plans, would go haywire and the plan would be unworkable.
87. We have no hesitation to say, that the word “other stakeholders” would squarely cover the Central Government, any State Government or any local authorities. The legislature, noticing that on account of obvious omission, certain tax authorities were not abiding by the mandate of I&B Code and continuing with the proceedings, has brought out the 2019 amendment so as to cure the said mischief. We therefore hold, that the 2019 amendment is declaratory and clarificatory in nature and therefore retrospective in operation.
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91. It is a cardinal principle of law, that a statute has to be read as a whole. Harmonious construction of subsection (10) of Section 3 of the I&B Code read with subsections (20) and (21) of Section 5 thereof would reveal, that even a claim in respect of dues arising under any law for the time being in force and payable to the Central Government, any State Government or any local authority would come within the ambit of ‘operational debt’. The Central Government, any State Government or any local authority to whom an operational debt is owed would come within the ambit of ‘operational creditor’ as defined under sub-section (20) of Section 5 of the I&B Code. Consequently, a person to whom a debt is owed would be covered by the definition of ‘creditor’ as defined under sub-section (10) of Section 3 of the I&B Code. As such, even without the 2019 amendment, the Central Government, any State Government or any local authority to whom a debt is owed, including the statutory dues, would be covered by the term ‘creditor’ and in any case, by the term ‘other stakeholders’ as provided in subsection (1) of Section 31 of the I&B Code.
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94. Therefore, in our considered view, the aforesaid provisions leave no manner of doubt to hold, that the 2019 amendment is declaratory and clarificatory in nature. We also hold, that even if 2019 amendment was not effected, still in light of the view taken by us, the Central Government, any State Government or any local authority would be bound by the resolution plan, once it is approved by the Adjudicating Authority (i.e. NCLT).
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130. In the foregoing paragraphs, we have held that 2019 amendment to Section 31 of I&B Code is clarificatory and declaratory in nature and therefore will have a retrospective operation. As such, when the resolution plan is approved by NCLT, the claims, which are not part of the resolution plan, shall stand extinguished and the proceedings related thereto shall stand terminated. Since the subject matter of the petition are the proceedings, which relate to the claims of the respondents prior to the approval of the plan, in the light of the view taken by us, the same cannot be continued. Equally the claims, which are not part of the resolution plan, shall stand extinguished.”
# 75. In this regard, the learned counsel for the respondent also relied on the facts on the judgment of the Rajasthan High Court in the case of Ultra Tech Nathdwara Cement Limited vs. Union of India in D.B. Civil Writ Petition No.9480/2019. It was considered in the said case, and it was observed that since the 2019 amendment to Section 31 of “IBC” is clarificatory and declaratory in nature it would have a retrospective operation. As such, if the resolution plan approved by the National Company Law Tribunal (for short NCLT), does not comprise all the claims of the Central / State Governments or the local authority, the said claim shall stand extinguished and the proceedings relating thereto shall stand terminated. Hence, the Hon’ble Supreme Court held that with regard to any claim prior to the approval of the resolution plan cannot be continued and would stand extinguished, if not made a part of the plan. Thus, claims which are not part of the resolution plan, shall stand extinguished.
# 76. Madras High Court has applied the judgment of the Hon’ble Supreme Court in Ghanashyam Mishra in the case of the respondent herein. However, the matter was remanded to the NCLT to give a finding as to whether the corporate resolution plan filed by the respondent therein included the customs duty on the import of goods in that case.
# 77. The provisions of Section 238 of “IBC” states that the provisions of “IBC” shall have effect, notwithstanding anything inconsistent therewith contained in any other law for the time being in force or any instrument having effect by virtue of any such law. Further, it is noted that crown debts do not take precedence even over secured creditors, who are private persons. This is clear on a reading of Section 238 of “IBC” which provides for the overriding effect of “IBC” notwithstanding anything inconsistent contained in other law for the time being in force or effect by any such law. Therefore, if the departments of Central or State Governments do not file an application or participate in the resolution process, their claims automatically get extinguished having regard to the judgment of the Hon’ble Supreme Court in the case of Ghanashym Mishra.
# 78. We are of the view that this matter does not require to be remanded to the NCLT, Mumbai, before which forum the resolution plan was approved. We however observe that the reasons are two fold: firstly, this appeal has been dismissed on merits and the respondent has succeeded on merits in this appeal, secondly, the appellants have not produced any material before us to demonstrate that the claim in the instant case was part of the resolution plan approved by the NCLT, Mumbai.
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