NCLT Chandigarh (22.11.2022) in Rms Employees Welfare Trust & Ors. Vs Mr. Prithipal Singh & Ors. [CA Nos. 368/2019, 778/2019 & 1123/2019 in CP (IB) No.07/Chd/Hry/2017] held that;
There was no obligation on the part of the State to lodge a claim in respect of dues which are statutory dues for which recovery proceedings have also been initiated.
The Books of Accounts of the Corporate Debtor would have reflected the liability of the Corporate Debtor to the State in respect of its statutory dues. In abdication of its mandatory duty, the RP failed to examine the Books of Accounts of the Corporate Debtor, verify and include the same in the information memorandum and make provision for the same in the Resolution Plan.
The Resolution Professional, thus, is directed to consider the claims of the applicant after verifying the said claims with respect to the materials produced before him. He is directed to treat this claim under section 53(1)(b)(ii), at par with the debts owed to a secured creditor, ranking equally with other specified debts.
Hence, the government dues including the Income Tax dues, are to be treated peri-passu with secured creditors and workman’s dues.
As the dues of the Income Tax Department have the first charge over the assets of corporate debtors, respectfully, following the judgement of Hon’ble Apex Court in the case of State Tax Officer (1) Vs. Rainbow Papers Limited (Supra), we direct the Resolution Professional to consider the claims of the applicant, after verifying the said claims with respect to the materials produced before him, under section 53(1)(b)(ii), at par with the debts owed to a secured creditor, ranking equally with other specified debts.
Blogger’s Comments; Major takeaways from this judgement read with the judgement of Hon’ble Supreme Court in State Tax Officer Vs. Rainbow Papers Limited (Civil Appeal Nos. 1661 of 2020 and 2568 of 2020) dated 06.09.2022, are;
There is no obligation on the part of the State to lodge a claim in respect of dues which are statutory dues for which recovery proceedings have also been initiated.
RP is to examine the Books of Accounts of the Corporate Debtor, verify and include the Statutory Dues in the information memorandum and make provision for the same in the Resolution Plan.
Liquidation value of the Statutory Dues (having first charge on the assets of CD, wherever provided in the concerned Statute) for compliance under section 30(2), has to be taken, treating the said Statutory Dues as secured operational debt, at par with other secured debts & workmen dues [Section 53(1)(b)].
Excerpts of the Order;
# 1. The brief common background of this case necessary for the adjudication of the present applications are :
i. The Corporate Insolvency Resolution Professional (‘CIRP’) in respect of the corporate debtor has been initiated by order dated 16.03.2017.
ii. After the constitution of the CoC and invitation of the Resolution Plan, the Resolution Plan submitted by the ‘RMS Employees Welfare Trust’ (herein referred as “Resolution Applicant”) has been approved by the CoC in the 8th Meeting held on 23.03.2018.
iii. Subsequently, RP has filed an application CA No.84/2018 under Section 31 of the Insolvency and Bankruptcy Code, 2016 for the approval of the Resolution Plan.
iv. This Adjudicating Authority has approved the Resolution Plan submitted by the Resolution Applicant by order dated 14.09.2018.
CA No.368/2019
# 2. The present application is filed under Section 60(5) read with Section 31(4) IBC, 2016 by RMS Employees Welfare Trust-Successful Resolution Applicant/New Management against Prithipal Singh (herein referred as “Respondent No.1”), State Bank of India, (herein referred as “Respondent No.2”), Anil Goel-Monitoring Agency, (herein referred as “Respondent No.3”),.
# 3. The applicants have prayed to direct Respondent No.2/SBI to remove lien on the current account of the corporate debtor and further directed respondent No.1 to withdraw his execution proceedings pending before Civil Judge, Chandigarh.
# 4. It is stated in the application that after the approval of the Resolution Plan by order dated 14.09.2018, Mr Anil Goel-Resolution Professional, has been appointed as the Chairman, Monitoring Agency for the implementation of the approved Resolution Plan. Respondent No. 1 is an ex-employee who filed an independent civil suit bearing No. 11874/2013 for the recovery of respective dues alleged to be arrears of salary. The aforesaid civil suit was decreed by order dated 30.08.2018 (Annexure A-2 of the application). During the course of execution proceedings, Ld. Civil Judge has passed an order dated 04.05.2019 attaching the property of the corporate debtor. In this process, the current account of the corporate debtor maintained with Respondent No. 2 was also attached, which hampered the day-to-day functioning of the company.
# 5. It is further stated that an application under section 10 was filed by the corporate debtor for initiation of CIRP, which was admitted on 16.03.2017. Pursuant to the admission, the IRP made a public announcement and Respondent No. 1 has filed its respective claim in Form-D. During the CIRP Period, the applicant submitted the Resolution Plan, which was approved by this adjudicating authority by order dated 14.09.2018. The Resolution Plan has proposed the waiver of all employees’ dues, including the waiver of dues of Respondent No. 1. Since the Resolution Plan has been approved by this Adjudicating Authority, Respondent No. 1 is not entitled to claim any dues post the approval of the Resolution Plan mainly for the reason that the said plan is also binding on him in the capacity of the creditor of the corporate debtor. It is further submitted that respondent No. 1 cannot pursue the proceedings before the Ld. Civil Judge, Chandigarh for the execution of decree dated 30.08.2018 in view of Section 238 of IBC, 2016.
# 6. The applicant has also filed written synopsis vide Diary No.01386/1 dated 13.09.2022 stating that respondent No.1 has submitted the claims in a different forum and in terms of Section 238 of IBC, an approved Resolution Plan shall have overriding effect over the attachment order passed by Ld. Civil Judge, Chandigarh. Execution proceeding in a similar matter was also dismissed by this adjudicating authority. The applicant has also placed reliance in the matter passed Hon’ble NCLAT titled as “Mr. Heman Mehta, Resolution Professional of Pan India Utilities Distribution Co. Ltd. v/s Asst. Commissioner of State Tax & Ors.; Company Appeal (AT) (Insolvency) No.328 of 2022 dated 05.08.2022”.
# 7. Respondent No.2 has filed its reply by Dairy No. 3461 Dated 17.07.2019, stating that the current account of the corporate debtor is maintained with the bank and as per the directions of Ld. Civil Judge, Chandigarh a sum of Rs. 24,82,648/- has been marked as a lien and the bank is ready to comply with the directions of this bench.
# 8. Respondent No. 3 has also stated during the course of the hearing on 10.10.2022 that he has no objection, if the present application is allowed.
# 9. The applicant has also filed an affidavit of service evidencing the service of the notices to the respondents. It is seen that respondent No.1 has been duly served through speed post, which is attached as Annexure-A1 and the tracking report attached as Annexure-A2 by Diary No.3440 Dated 16.07.2019. Respondent No.1 has also been served an email as per the directions issued by order Dated 12.08.2022. A copy of the email is attached as Annexure-A1 of Diary No.01386/2 dated 20.09.2022. Despite several opportunities, respondent No.1 has failed to appear before this Adjudicating Authority.
# 10. We have heard the learned counsel for Applicant and the learned counsel for respondent No.2 & 3 and have pursued the records carefully.
# 11. The issue for adjudication in the case in hand is whether the Adjudicating Authority can override the order of the Civil Court and whether the Resolution Professional has the powers under the Code to take custody of the bank account and pray for defreezing the account.
# 12. On the issue of the overriding powers of IBC under Section 238 of the Code, we can beneficially refer to the decision of the Hon’ble NCLAT in the case of Mr. Heman Mehta, Resolution Professional of Pan India Utilities Distribution Co. Ltd. (supra) wherein on similar facts, it was held that
“15. This now brings us to Section 238 of the IBC which reads as follows: – Section 238: Provisions of this Code to override other laws –
“The provisions of this Code shall have an 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”.
Section 238 of IBC clearly overrides anything inconsistent contained in any other enactment. The IBC is thus a complete code and prevails over all other laws which are inconsistent with or in conflict with the Code. This is a settled position of law and a catena of judgements of the Hon’ble Supreme Court affirms this position viz. Principal Commissioner of Income Tax Vs. Monnet Ispat and Energy Limited (2018 SCC Online SC 3465); Tata Consultancy Services Limited Vs. Vishal Ghisulal Jain (2020 SCC Online SC 1254) and Indus Biotech Pvt. Ltd. v. Kotak India Venture (Offshore) Fund (2021 SCC Online SC 268). We, therefore, agree that the directions issued by Respondent No.1 and 2 freezing the accounts of the corporate debtor during the liquidation process is bad in law, and hence it was within the remit of the Adjudicating Authority to issue appropriate directions to the Respondents No. 1 and 2 to set the matter right and provide statutory relief to the Appellant.”
# 13. Further, in the same case, on the issue of the powers of the liquidator to take custody of the bank account and seek defreezing of the same, the Hon’ble NCLAT has quoted the provision of Section 35 of IBC, 2016 and held : “Section 35 reads as follows: –
35. Powers and duties of liquidator –
(1) Subject to the directions of the Adjudicating Authority, the liquidator shall have the following powers and duties, namely: —
“(a) to verify claims of all the creditors;
(b) to take into his custody or control all the assets, property, effects and actionable claims of the corporate debtor;”
xxx xxx xxx
10. A bare reading of the stipulations contained in the above provision of IBC clearly empowers the liquidator to exercise authority to seek the defreezing of the current bank accounts of the corporate debtor and transfer the funds lying therein to the Liquidator’s account so as to form part of the liquidation estate”. (Emphasis Supplied)
# 14. In the case at hand, it is seen that the Civil Court has passed a decree on 30.08.2018 and, consequently, passed an order marking a lien on the current account of the corporate debtor. The CIRP of the corporate debtor was initiated under Section 10 of the code and moratorium u/s 14 of the code was also declared by order dated 16.03.2017 i.e. before the order was passed by Civil Court. The Resolution plan was subsequently approved by this Adjudicating Authority vide order dated 14.09.2018.
# 15. Thus, the action of the Civil Court falls within the moratorium period declared under Section 14 of the IBC, 2016. For the sake of clarity, the said section is quoted as under:-
“14. (1) Subject to provisions of sub-sections (2) and (3), on the insolvency commencement date, the Adjudicating Authority shall by order declare moratorium for prohibiting all of the following, namely:—
(a) the institution of suits or continuation of pending suits or proceedings against the corporate debtor including execution of any judgment, decree or order in any court of law, tribunal, arbitration panel or other authority;”
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# 16. The proceedings against the corporate debtor including execution of any judgment, decree or order etc., is prohibited during the moratorium period. Thus, the action of the Civil Court is in contravention of the provision of Section 14 of the IBC. Keeping in view of the order of the Hon’ble NCLAT in the case of Heman Mehta (supra), We hold that the Resolution Professional had the power to defreeze the current bank accounts of the corporate debtor and in view of overriding powers of IBC under Section 238 of the Code. Thus, this Adjudicating Authority directs Respondent No.2 to remove the lien on the current account of the corporate debtor and further directs Respondent No.1 to withdraw his execution proceedings pending before the Civil Judge, Chandigarh.
# 17. In the result, CA No. 368/2019 application is allowed and disposed of, accordingly.
CA No.778/2019
# 18. The present application is filed under Section 60(5) IBC, 2016 by the Excise and Taxation Commissioner against Anil Goel, Monitoring Agency of corporate debtor.
# 19. The applicant has prayed to direct the Resolution Professional to accept the claims of the applicants as revised and to set aside/modify the Resolution Plan as approved by CoC.
# 20. The facts of the case as stated in the application, are that pursuant to the public announcement, the applicant has filed its claim along with the supporting documents through email dated 16.06.2017 and by registered post No. RH250207269IN dated 20.06.2017. However, no reply or intimation was given by Resolution Professional to the claim filed by the applicant. After almost two years, the applicant has written a letter dated 19.04.2019 to this adjudicating authority along with the detail of the revised claim against the corporate debtor. The Registry of this adjudicating authority has informed by letter dated 25.04.2019 that the revised claim has been forwarded to the RP. The applicant has again filed the claim in Form-B with RP on 14.05.2019 (Annexure-A3 of the application) vide Registered post. The Resolution Professional has replied by email dated 06.08.2019 that since, as per the Resolution Plan and Section 30(2) of the Code, the liquidation value due to the Operational Creditor is Nil, the corporate debtor does not have any liability to the department in respect of any dues that may be outstanding as on 16.03.2017 i.e. date of initiation of CIRP.
# 21. It is submitted that once the debt is duly reflected in the financial statements of the corporate debtor and the RP takes charge of the books of accounts, he becomes duty-bound to ascertain the assets and the liabilities of the corporate debtor so that a proper Resolution plan could be evolved.
# 22. The respondent has filed its reply by Diary No. 1513 dated 24.02.2020 and written submissions by Diary No. 01388/1 dated 03.06.2022, wherein it has been stated that the Resolution Applicant has preferred an appeal against the order dated 14.09.2018 and Hon’ble NCLAT in order dated 30.05.2019 has held that
“The debt of the Central Government or the State Government arising out of the existing law being ‘Operational Debt’, the question of asking for a waiver does not arise as per the ‘Resolution Applicant’ to decide how much to be paid to the Central Government or the State Government against the ‘Operational Debt’ (Income Tax or G.S.T or any other statutory debt), which should not be less than the amount to be paid to the ‘Operational Creditors’ in the event of a liquidation of the ‘Corporate Debtor’ under Section 53.”
# 23. The applicant has submitted by Dairy No 01388/2 dated 11.10.2022 that the Resolution Professional should have made the best estimate on the basis of information available with him, which is also the mandate of regulation 14 of IBBI (Insolvency Resolution Process for Corporate person) Regulation, 2016. It is further stated that the sub Sections 3 & 4 of Section 14 of the Haryana Value Added Tax, 2003 are relevant for the determination of the claim in the present application and Section 26 of the Haryana Value Added Tax Act, 2003 creates the first charge on the property of the defaulter assessee.
# 24. In this context, reliance is placed on the provision of Section 26 of the Haryana Value Added Tax Act, 2003, and the same is reproduced below :-
“26. Amount due under this Act recoverable as arrears of land revenue :- Any amount due under this Act, including the Tax admitted to be due acceding to the returns filed, which remains unpaid after the last date specified for payment, shall be the first charge on the property of the defaulter and shall be recoverable from him as if the same were arrears of land reverence”. (Emphasis Supplied)
# 25. It is further submitted that dues being statutory dues under the Haryana Value Added Tax, 2003, duly reflected in the books of accounts of the corporate debtor and the Resolution Professional should have made the best estimate on the basis of information available with him which is also the mandate of regulation 14 of IBBI (Insolvency Resolution Process for Corporate person) Regulation, 2016. Reliance is also placed on the case of State Tax Officer Vs. Rainbow Papers Limited Civil Appeal Nos. 1661 of 2020 and 2568 of 2020 dated 06.09.2022.
# 26. We have heard the learned counsel for Applicant and the learned counsel for respondents and have pursued the records carefully.
# 27. In this context, we summarise the decision of the Hon’ble Apex Court in the case of State Tax Officer Vs. Rainbow Papers Limited (Supra) as under:
“(I) Under the unamended provisions of regulation 12(1) of CIRP Regulations, the StateTax Officer (appellant) was not required to file any claim. Read with regulation 10, The appellant would only be required to substantiate the claim by the 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 (IRP) or the RP, as the case may be, to revise the amounts of claims admitted, including the estimates of claims made under the Sub-Regulation (1) of the said Regulation as soon as might be practicable, when he came across additional information warranting such revision. (Para-24)
(II) There was no obligation on the part of the State to lodge a claim in respect of dues which are statutory dues for which recovery proceedings have also been initiated. The state was never called upon to produce materials in connection with the claim raised towards statutory dues. (Para-25)
(III) The Books of Accounts of the Corporate Debtor would have reflected the liability of the Corporate Debtor to the State in respect of its statutory dues. In abdication of its mandatory duty, the RP failed to examine the Books of Accounts of the Corporate Debtor, verify and include the same in the information memorandum and make provision for the same in the Resolution Plan. The Resolution Plan does not conform to the statutory requirements of the Code and is, therefore, not binding on the State. (Para-26)
(IV) 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 Code. The time period is, however, not mandatory but only directory. (Para-39)”
# 28. As in the present case, CIRP was initiated on 16.03.2017 and the claim was sent by Email/speed post on 16.06.2017. In such facts, the department is not required to lodge the claim as Regulation 12 is only a directory.
# 29. Thus, respectfully following the decision of the Hon’ble Apex Court in the case of State Tax Officer Vs. Rainbow Papers Limited (Supra) we hold that the Excise and Taxation Department is under no obligation to lodge the claim in respect of the statutory dues and the department should have been called upon to produce the materials in connection with their claims. Further, the filing of dues within the prescribed period does not apply to the present case. Section 26 of Haryana Value Added Tax, 2003 creates the first charge for the dues under the said Act on the properties of the defaulter. The Resolution Professional, thus, is directed to consider the claims of the applicant after verifying the said claims with respect to the materials produced before him. He is directed to treat this claim under section 53(1)(b)(ii), at par with the debts owed to a secured creditor, ranking equally with other specified debts.
# 30. In the result, CA No. 778/2019 application is allowed with aforesaid directions and disposed of, accordingly.
CA No.1123/2019
# 31. The present application is filed under Section 60(5) IBC, 2016 by the Assistant Commissioner of the Income Tax Department against Mr Anil Goel, Monitoring Agency of corporate debtor (herein referred as “Respondent No.1”), Recorder and Medicares Systems Pvt. Ltd. (herein referred as “Respondent No. 2”), RMS Employees Welfare Trust-Successful Resolution Applicant/New Management (herein referred as “Respondent No.3”) and Committee of Creditor of Recorder and Medicares Systems Pvt. Ltd. (herein referred as “Respondent No. 4”).
# 32. The applicant has prayed to issue directions to the Resolution Professional to consider the claims of the applicants filed in Form-B with regard to the outstanding amount and other reliefs as deemed fit by the adjudicating authority.
# 33. In the present case, the applicant has filed a claim of the total outstanding amount of Rs.54,47,380/- in Form-B along with the documentary evidence’s on 27.12.2017 with the Resolution Professional. The Form-B by which the applicant has filed the claim has been attached as Annexure-A4 of the application. Subsequently, the Resolution Plan was approved by this Adjudicating Authority by order dated 14.09.2018. Respondent No.1 has made a communication to the applicant vide letter dated 10.09.2019 that the New Management has taken over the affairs of the company and the liability of the Income Tax Department as outstanding on 16.03.2017 has been waived off. The Resolution Applicant has approached the Hon’ble NCLAT challenging the order dated 14.09.2018 wherein this Adjudicating Authority hold that :
“We find that in Para C.4 of the minutes of the meeting of CoC held on 23.03.2018 (Annexure Q of the Petition), it is inter-alia stated that no payment under the Resolution Plan is envisaged for government dues. The matter relating to the waiver of Government dues, including waiver of MAT liability under Section 115J of the Income Tax Act 1961, may be considered by the respective Government Department”.
# 34. The Hon’ble NCLAT vide order dated 30.05.2019 has held that the impugned order passed by the Adjudicating Authority, relating to waiver of Income Tax is without jurisdiction and the same shall be considered as Operational Debt and the amount to be paid should not be less than the amount payable to an operational creditor as per Section 53.
# 35. Respondent No.1 has filed its reply and written submissions by Dairy No. 7369 Dated 24.12.2019 and 01387/3 dated 03.06.2022, respectively. It has been stated that respondent No.1 did not receive the claim of the applicant till the stipulated period in the Code or even till the approval of the Resolution Plan by the Hon’ble Adjudicating Authority. If the claim of the applicant has been filed, it would have been dealt with in accordance with Section 53 of the Code.
# 36. The Applicant has filed its replication vide Diary No. 1034 dated 07.02.2020, wherein it has been mentioned that the applicant has filed its claim before the Resolution Professional, Sh. Anil Goel vide letter bearing no. ACIT/C- 2(1)/Chd/6394 dated 26.12.2017, along with Form-B and documentary evidences through Speed Post bearing No. E478923321IN dated 27.12.2017.
# 37. Respondent No. 2 and 3 have filed joint written submissions vide Diary No. 01387/2 dated 03.06.2022., wherein it has been stated that Respondent No. 1 did not receive the claim of the applicant till the approval of the Resolution Plan. Respondent Nos. 2 and 3 have relied upon the judgement of the Director General of Income Tax Vs. M/s Synergies Dooray Automotive Ltd and Ors. passed by the Hon'ble NCLAT in Company Appeal (AT) 205/2017 dated 20.03.2019 and Ghanashyam Mishra and Sons Private Limited Vs. Edelweiss Asset Reconstruction Company Limited and Ors. [2021] 227 Comp Cas 251 (SC) decided on 13.04.2021. Respondent has also relied upon the judgement of Hon'ble Supreme Court in the case of The Committee of Creditors of Essar Steel India v. Satish Kumar Gupta [Civil Appeal No. 8766-67 OF 2019 dated 15.11.2019].
# 38. The applicant has filed written submissions vide Diary No. 01387/5 dated 12.10.2022, wherein it has been stated that the judgment of Ghanashyam Mishra and Sons Private Limited (Supra), is not applicable to the case in hand as in the present case, the claim was filed much before the approval of the Resolution Plan. The applicant has also relied upon the case of State Tax Officer (1) Vs. Rainbow Papers Limited (Supra).
# 39. In its submissions made by Dairy No. 1387/5 dated 12.10.2022, it is further submitted that
“ ********* The Income Tax Department are statutory dues. The procedure for recovery of income tax dues is governed under the Second Schedule of the Income Tax Act, 1961. Rule 93 of Part VI (Miscellaneous) of the Second Schedule of the Income Tax Act, 1961 prescribes the first charge upon any asset, which is reproduced hereunder:
“93. Saving regarding charge- Nothing in this schedule shall affect any provisions of this Act whereunder the tax is the first charge upon any asset.”
# 40. It is also averred that Rule 93 of Part VI (Miscellaneous) of the Second Schedule of the Income Tax Act, 1961 and Section 48 of the Gujrat Value Added Tax, 2003 are pari-materia. Hence, the government dues including the Income Tax dues, are to be treated peri-passu with secured creditors and workman’s dues.
# 41. We have heard the learned counsel for Applicant and the learned counsel for respondents and have pursued the records carefully.
# 42. It is noted that CIRP was initiated by order dated 16.03.2017 and the applicant/Income Tax department filed it’s claim with RP on 27.12.2017. The CoC approved the Resolution Plan on 23.03.2018. Further, the filing of dues within the prescribed period does not apply to the present case. As the dues of the Income Tax Department have the first charge over the assets of corporate debtors, respectfully, following the judgement of Hon’ble Apex Court in the case of State Tax Officer (1) Vs. Rainbow Papers Limited (Supra), we direct the Resolution Professional to consider the claims of the applicant, after verifying the said claims with respect to the materials produced before him, under section 53(1)(b)(ii), at par with the debts owed to a secured creditor, ranking equally with other specified debts.
# 43. Hence, CA No. 1123/2019 is allowed with the aforesaid directions and disposed of, accordingly.
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