Appellate Tribunal clarifies tax debts as 'Operational Debt' under Insolvency Law

The Appellate Tribunal set aside the part of the order directing waiver of Income Tax, affirming that debts to the Central or State Government are 'Operational Debt' under the Insolvency and Bankruptcy Code, 2016. The Resolution Applicant must decide the payment against such debts. The remaining part of the order approving the 'Resolution Plan' was upheld. The appeal was allowed with the mentioned observations and no costs were awarded.

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Issues:
1. Whether debts payable to the Central or State Government are 'Operational Debt' under the Insolvency and Bankruptcy Code, 2016Rs.
2. Can the Adjudicating Authority direct the Government to consider waiving such debtsRs.

Issue 1:
The appeal was filed against part of an order approving a 'Resolution Plan' that stated no payment was envisaged for Government dues. The Appellant argued that debts to the Government are 'Operational Debt' under Section 5(21) of the Insolvency and Bankruptcy Code, 2016 (IBC). Reference was made to legal precedents to support the interpretation that seeking aid for defining 'Operational Debt' is unnecessary if there is no ambiguity in the meaning.

Issue 2:
The Adjudicating Authority's power to direct the Government to consider waiving debts was challenged. The Amicus Curiae referred to legislative guides and reports to argue that debts payable to the Government do not fall under 'Operational Debt.' The Appellate Tribunal cited a previous case to explain that statutory dues, including Income Tax and Value Added Tax, are considered 'Operational Debt' as they have a direct nexus with the operation of the Company. Therefore, the Tribunal held that the part of the order related to waiving Income Tax was without jurisdiction.

Conclusion:
The Appellate Tribunal set aside the part of the order directing waiver of Income Tax, affirming that debts to the Central or State Government are 'Operational Debt' and the Resolution Applicant must decide the payment against such debts. The remaining part of the order approving the 'Resolution Plan' was upheld. The appeal was allowed with the mentioned observations and no costs were awarded.

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