2022 (1) TMI 870 - AT - Insolvency and Bankruptcy

Government of India qualifies as Operational Creditor under Insolvency and Bankruptcy Code

Government of India Through Office of the Assistant Commissioner, GST & Central Tax, Cuttack-II Division Versus Ashish Chhawchharia, Committee of Creditors of M/s. Odisha Slurry Pipeline Infrastructure Ltd., M/s. Arcelor Mittal India Pvt. Ltd.

The Tribunal upheld that the Appellant, the Government of India, qualifies as an Operational Creditor under the Insolvency and Bankruptcy Code. It ruled ... Approval of Resolution Plan - statutory dues (tax liability) - difference made in the Code with regard to statutory dues and other claims (Operational Creditors) pursuant to a contract or not - any prior approval for extinguishing statutory dues is required or not - wisdom of the COC can be interfered with or not - COC has complied with the rules and regulations of the Code or not - Section 31 of the Insolvency and Bankruptcy Code, 2016 - HELD THAT:- The Appellant being Government of India and the statutory dues payable to the Central Government is covered under ‘Operational Debt’ as defined in Section 5(21) of the Code, 2016 therefore, the Appellant fall under the category of Operational Creditor and its statutory dues fall under the category of Operational Debt. Therefore, for all the purposes the claim of the Appellant come within the definition of Section 5 of Sub Section 21 of the I&B Code, 2016. As stated supra, the claim of the Appellant is an Operational Debt and for all purposes the I&B Code, 2016 shall only apply. There is no special treatment or category made separately for such dues and the claim of the Appellant are to be treated as Operational Debt. - In view of the settled law, there is no special treatment that can be accorded to statutory dues under the scheme of the I&B Code. Statutory dues stand on different footing than the Operational Creditors, whose claims have arisen pursuant to a contract - HELD THAT:- In the present case, the Committee of Creditors has complied with all the Rules and Regulations and the plan has been Approved by the Adjudicating Authority by 100% of voting in the 8th Committee of Creditors Meeting held on 06.12.2019. From the mandatory contents of the Resolution Plan, it is evident that the rules and regulations and Provisions of Law has been followed by the Committee of Creditors - having complied with all the rules and regulations the Adjudicating Authority rightly approved the plan of the Successful Resolution Applicant. In the Order of the Adjudicating Authority clearly states that the same shall be binding on the Corporate Debtor, its employees, members, creditors, including the Central Government, State Governments, Local Authority, Guarantors and other Stakeholders. In pursuance of the approved Resolution Plan by the Adjudicating Authority it is evident that the Appellant was paid a sum of ₹ 1 Crore towards its dues and there is no denial from the Appellant with regard to payment of ₹ 1 Crore - it is also evident that the Appellant was paid to the extent of 36.30% of the amount claimed by the Appellant. There are no infirmity or irregularity in the order passed by the Adjudicating Authority which is impugned before this Tribunal - appeal dismissed. Issues Involved:1. Whether the Appellant falls under the category of Operational Creditor or notRs.2. Whether any difference is made in the Code with regard to statutory dues and other claims (Operational Creditors) pursuant to a contractRs. (any prior approval for extinguishing statutory dues is required)3. Whether wisdom of the Committee of Creditors (CoC) can be interfered withRs.4. Whether the CoC has complied with the rules and regulations of the CodeRs.Issue-wise Analysis:1. Whether the Appellant falls under the category of Operational Creditor or notRs.The Appellant, being the Government of India and holding statutory dues payable to the Central Government, is covered under 'Operational Debt' as defined in Section 5(21) of the Insolvency and Bankruptcy Code (I&B Code), 2016. Thus, the Appellant falls under the category of Operational Creditor, and its statutory dues fall under the category of Operational Debt. This classification aligns with the settled law, as all statutory dues, including income tax and value-added tax, are considered Operational Debt.2. Whether any difference is made in the Code with regard to statutory dues and other claims (Operational Creditors) pursuant to a contractRs. (any prior approval for extinguishing statutory dues is required)The Appellant contended that statutory dues stand on a different footing than claims arising from contracts. However, the Tribunal disagreed, reiterating that statutory dues are treated as Operational Debt under the I&B Code. There is no special treatment or separate category for statutory dues within the Code. The Tribunal referenced previous judgments, including Principal Director General of Income Tax v M/s. Synergies Dooray Automotive Ltd., which held that statutory dues have a direct nexus with the operation of the company and thus fall under Operational Debt.3. Whether wisdom of the Committee of Creditors (CoC) can be interfered withRs.The Tribunal emphasized that the commercial wisdom of the CoC is paramount and cannot be interfered with unless it violates the rules and regulations of the Code. The Supreme Court in Essar Steel clarified that the ultimate discretion of what and how much to pay each class or subclass of creditors lies with the CoC. The CoC must balance the interests of all stakeholders, including Operational Creditors, and maximize the value of the Corporate Debtor's assets. Judicial review by the Adjudicating Authority is limited to ensuring compliance with Section 30(2) of the Code.4. Whether the CoC has complied with the rules and regulations of the CodeRs.The Tribunal found that the CoC complied with all rules and regulations. The Resolution Plan was approved by 100% of the CoC members in the 8th meeting held on 06.12.2019. The Adjudicating Authority approved the Plan under Section 31(1) of the Code, making it binding on all stakeholders, including the Central Government. The Appellant received Rs. 1 Crore, constituting 36.30% of its claimed amount, which aligns with the Plan's provisions. The Tribunal noted that the Plan dealt with the interests of all stakeholders, including Financial and Operational Creditors, in compliance with Regulation 38(1A) of the CIRP Regulations.Conclusion:The Tribunal dismissed the appeal, finding no infirmity or irregularity in the Adjudicating Authority's order. The Resolution Plan was compliant with the I&B Code, and the Appellant's arguments regarding the non-extinguishment of statutory dues and the need for prior approval were found to lack merit. The appeal was deemed devoid of merits, and no costs were awarded.