Liability to State Govt as Financial Debt under Insolvency Code: Tribunal directs RP on claim evaluation

The Tribunal held that the liability of the Corporate Debtor to the State Government qualifies as a "Financial Debt" under the Insolvency and Bankruptcy Code. It directed the Resolution Professional to consider the State's claim and reconstitute the Committee of Creditors if necessary. The Tribunal also found that late submission of claims should not bar their consideration, directing the RP to present delayed claims for evaluation. Additionally, the RP was instructed to reconsider a resolution plan and address pending tax assessments, ensuring all relevant claims are considered in the insolvency resolution process.

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Issues Involved:
1. Whether the liability of the Corporate Debtor to the Applicant State Government amounts to a Financial Debt.
2. Whether the financial creditor is eligible to have its claim considered if not presented within the stipulated period.
3. Whether the process followed by the Resolution Professional during the CIRP was as per the provisions of the Code and Regulations.
4. Whether a new Resolution Plan can be considered after the CoC's approval and submission to the Adjudicating Authority.
5. Whether the Commercial Taxes Department's claim should be admitted and how it affects the Resolution Plan.

Issue-wise Detailed Analysis:

I. Whether the liability of the Corporate Debtor to the Applicant State Government amounts to a Financial Debt:
1. Applicant's Claim: The State of Karnataka, Department of Industries & Commerce, claimed an interest-free VAT loan of Rs. 226.87 crores provided to the Corporate Debtor under a special incentive scheme, which was to be repaid after ten years.
2. Respondent's Objection: The RP argued that the VAT loan was a benefit/concession, not a financial debt, as it lacked the "time value of money."
3. Tribunal's Finding: The Tribunal found that the loan agreement indicated a time value for money, as it included provisions for interest if not repaid within the stipulated time. The Corporate Debtor's assets were mortgaged to the State Government, and the loan was categorized as a "Secured Loan" in the Corporate Debtor's audited balance sheets. Therefore, the Tribunal held that the VAT loan qualifies as a "Financial Debt" under Section 5(8) of the Code.

II. Whether the financial creditor is eligible to have its claim considered if not presented within the stipulated period:
1. Applicant's Delay: The State of Karnataka filed its claim late due to a lack of information and the onset of the COVID-19 pandemic.
2. Respondent's Argument: The RP argued that the claim was not submitted within the timelines and hence could not be considered.
3. Tribunal's Finding: The Tribunal held that the timelines for submission of claims are directory, not mandatory. The RP should have considered the claim based on the Corporate Debtor's books of accounts. The Tribunal directed the RP to put up the claim for the CoC's consideration and reconstitute the CoC if necessary.

III. Whether the process followed by the Resolution Professional during the CIRP was as per the provisions of the Code and Regulations:
1. Applicant's Allegation: Swamitva Landmarks alleged that the RP did not provide audited financial statements and other necessary information, hindering the preparation of a viable resolution plan.
2. Respondent's Defense: The RP argued that the information was provided on an "as is where is" basis, and the applicants had access to the Virtual Data Room.
3. Tribunal's Finding: The Tribunal found that the RP did not comply with Regulation 36(2)(b), (c), (d), and (f) of the IBBI Regulations, which mandate providing audited financial statements and details of creditors. The Tribunal held that the RP's failure to follow the correct procedure prevented the applicant from submitting a timely plan and directed the RP to place the Swamitva Landmarks' plan before the CoC for consideration.

IV. Whether a new Resolution Plan can be considered after the CoC's approval and submission to the Adjudicating Authority:
1. Respondent's Argument: The RP argued that once the CoC has approved a resolution plan and submitted it to the Adjudicating Authority, no new plan can be considered.
2. Tribunal's Finding: The Tribunal referred to the Supreme Court's decision in the Essar Steel case, which allows the Adjudicating Authority to send a resolution plan back to the CoC if the parameters of the Code are not met. The Tribunal held that the RP's failure to follow the correct procedure justified reconsideration of the Swamitva Landmarks' plan, even after the CoC's approval of another plan.

V. Whether the Commercial Taxes Department's claim should be admitted and how it affects the Resolution Plan:
1. Applicant's Claim: The Assistant Commissioner of Commercial Taxes claimed Rs. 54,46,13,819/- based on a best judgment assessment.
2. Respondent's Objection: The RP argued that the best judgment assessment orders were deemed withdrawn as the Corporate Debtor filed returns and paid self-assessed GST liability.
3. Tribunal's Finding: The Tribunal noted that the regular assessment was still pending, and the RP should have included a clause in the IM to factor in any potential liability. The Tribunal directed the Commercial Taxes Department to provide a crystallized demand and the RP to place it before the CoC for consideration.

Directions:
1. IA 85 of 2021: The claim by the State of Karnataka as a Financial Creditor shall be put up by the RP to the CoC for consideration, and reconstitution of the CoC will be considered.
2. IA 227 of 2020: The Resolution Plan submitted by Swamitva Landmark shall be placed before the CoC along with the plan submitted by METL for evaluation and approval.
3. IA 248 r/w IA 225 of 2020: Disposed of as infructuous, but issues raised by the erstwhile Promoters shall be considered by the RP.
4. IA 134 of 2020: The Commercial Taxes Dept. shall provide a crystallized demand, and the RP shall place it before the CoC for consideration.
5. IA 161 of 2020: Deemed disposed of and restored to the RP for reconsideration by the CoC along with the Swamitva Landmark plan.
6. Timeline: The RP shall carry out the directions within 12 weeks from the receipt of the order, with liberty to seek further exclusion of time if necessary.

All IAs in C.P. (IB) No. 51/BB/2018 are disposed of as above. No order as to cost. Post the case for report of the RP on 30th June 2021.

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