TaxTMI 
TaxTMI 
2020 (4) TMI 269
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....2018 (Annex.11), order dated 20.3.2019 (Annex.12), notice dated 6.3.2019 (Annex.13), notice dated 8.3.2019 (Annex.14), notice dated 29.3.2019 (Annex.15), notice dated 29.3.2019 (Annex.16), notice dated 10.4.2019 (Annex.18), order dated 9.4.2019 (Annex.19), two notices dated 11.6.2019 (Annex.20) issued by the respondent Central Goods and Service Tax Department, Govt. of India whereby the petitioner was called upon to pay Goods and Service Tax (G.S.T.) for the period before it took over a company named M/s.Binani Cements Ltd. A restraint order is also sought for against the respondents from raising any further demands or from proceeding with any coercive steps so far as dues incurred in relation to the period prior to the transfer date on which the petitioner took over the company M/s Binani Cements in proceedings under the Insolvency Bankruptcy Code 2016 (hereinafter to be referred to as 'IBC' for brevity). Brief facts relevant and essential for disposal of the case are that a company named Binani Cement suffered huge losses and was unable to pay the debts to the Financial Creditor i.e. Bank of Baroda, which preferred an insolvency application being Company Petition (IB) No.359/K....
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....ive analysis available on record, if the company had gone into liquidation, the operational creditors would have been deprived of any chance of recovery as their share in the liquidated assets has been assessed as nil in this situation. Be that as it may. The resolution plan was approved by the National Company Law Appellate Tribunal (hereinafter to be referred to as 'NCLAT' for brevity) vide order dated 14.11.2018 passed in Company Appeal (AT) Insolvency No.188/2018. The Bank of Baroda being a financial creditor challenged the resolution plan affirmed by the NCLAT before Hon'ble the Supreme Court which affirmed the order of the NCLAT vide order dated 19.11.2018 passed in Civil Appeal No.10998/2018. Pursuant to receiving this final seal of approval of the resolution plan, the petitioner Ultra Tech took over the management and operations of Binani Cement Ltd. and the name of the company was changed to Ultra Tech Nathdwara Cement Ltd. The resolution plan was fully implemented and payments in its terms were duly made to all the creditors including the statutory creditors. Despite the resolution plan having attained finality and having been executed, the respondents herein....
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....me Court vide order dated 26.7.2019. This Court is apprised that the respondent Commissioner of Central Goods and Service Tax and Central Excise Commissionerate, Jodhpur also challenged the order passed by the NCLAT by filing Civil Appeal Nos.630-634 of 2020 (Diary No.21866/2019) before Hon'ble the Supreme Court, which has been dismissed vide order dated 24.1.2020. The Court's attention was drawn to the following averments made in the SLP filed by the Goods and Service Tax Department before Hon'ble the Supreme Court and it was urged that the judgment of the NCLAT approving the resolution plan wherein the government revenue was curtailed by Rs. 144.96 crores and was restricted at Rs. 72.85 crores was specifically challenged by the Department: "(i) Whether the Hon'ble NCLAT was justified in approving the Resolution Plan, which is adversely affecting the Government revenue amounting to Rs. 144.96 crore, without giving any opportunity of hearing to the department? (ii) Whether the Hon'ble NCLAT was justified in approving the Resolution Plan, wherein interest and penalty has been paid till the date of admission of Insolvency process, whereas as per Central Exci....
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.... (b) the resolution professional shall forward all records relating to the conduct of the corporate insolvency resolution process and the resolution plan to the Board to be recorded on its database. was amended vide gazette notification dated 6.8.2019 in the following terms:- Approval of resolution Plan (1) If the Adjudicating Authority is satisfied that the resolution plan as approved by the committee of creditors under sub-section (4) of section 30 meets the requirements as referred to in sub-section (2) of section 30, it shall by order approve the resolution plan which shall be binding on the corporate debtor and its employees, members, creditors, 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, guarantors and other stakeholders involved in the resolution plan. [Emphasis supplied] As per the amended provision of Section 31 of the IBC, the approved resolution plan has been made binding on the corporate debtor, its employees, members and all creditors including the Cen....
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....olling with the Adjudicating Authority, after admitting an application under either Sections 7, 9 or 10, ordering that a public announcement of the initiation of the CIRP together with calling for the submission of claims Under Section 15 shall be made- see Section 13(1)(b) of the Code. For this purpose, the Adjudicating Authority appoints an interim resolution professional in the manner laid down in Section 16- see Section 13(1)(c) of the Code. In the public announcement of the CIRP, Under Section 15(1), information as to the last date for submission of claims, as may be specified, is to be given; details of the interim resolution professional, who shall be vested with the management of the corporate debtor and be responsible for receiving claims, shall also be given, and the date on which the CIRP shall close is also to be given-see Section 15(1)(c), (d) and (f) of the Code. Under Section 17 of the Code, the management of the affairs of the corporate debtor shall vest in the interim resolution professional, the Board of Directors of the corporate debtor standing suspended by law. Among the important duties of the interim resolution professional is the receiving and collating of a....
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....the resolution professional must present to the Committee of Creditors, for its approval, such resolution plans which conform to the conditions referred to in Section 30(2) of the Code-see Section 30(3) of the Code. If the resolution plan is approved by the requisite majority of the Committee of Creditors, it is then the duty of the resolution professional to submit the resolution plan as approved by the Committee of Creditors to the Adjudicating Authority-see Section 30(6) of the Code. 23. The aforesaid provisions of the Code are then fleshed out in the 2016 Regulations. Under Chapter IV of the aforesaid Regulations, claims by operational creditors, financial creditors, other creditors, workmen and employees are to be submitted to the resolution professional along with proofs thereof-see Regulations 7 to 12. Thereafter, under Regulation 13, the resolution professional shall verify each claim as on the insolvency commencement date, and thereupon maintain a list of creditors containing the names of creditors along with the amounts claimed by them, the amounts admitted by him, and the security interest, if any, in respect of such claims, and constantly update the aforesaid l....
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.... negotiated and decided by the Committee of Creditors. 30. Accordingly, Regulation 38 then deals with the mandatory contents of a resolution plan, making it clear that such plan must contain a provision that the amount due to operational creditors shall be given priority in payment over financial creditors-see Regulation 38(1). Such plan must also include provisions as to how to deal with the interests of all stakeholders including financial creditors and operational creditors of the corporate debtor-Regulation 38 (1A). It must then provide for the term of the plan, management and control of the business of the corporate debtor during such term, and its implementation. It must also demonstrate that it is feasible and viable, and that the resolution Applicant has the capability to implement the said plan. Regulation 38, being important, is set out hereinbelow: 38. Mandatory contents of the resolution plan (1) The amount due to the operational creditors under a resolution plan shall be given priority in payment over financial creditors. (1A) A resolution plan shall include a statement as to how it has dealt with the interests of all stakeholders, i....
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.... arrangement securing payment or performance of any obligation of any person: Provided that security interest should not include a performance guarantee;" On these submissions, learned senior counsel Shri Vohra vehemently and fervently urged that the writ petition deserves acceptance and the impugned notices as well as any future demands deserve to be quashed and set aside and the respondents be restrained from raising any future demands from the petitioner towards the goods and service tax for the period prior to the resolution plan being finalized. Per contra, Shri Rajvendra Saraswat learned counsel representing the respondents vehemently and fervently opposed the submissions advanced by the petitioner's counsel and urged that the department was not heard by the COC before finalizing the resolution plan and as such, it is not bound by the same. He further contended that the mere summary rejection of the SLP preferred by the department against the resolution plan would not foreclose the right of the department to raise its valid demands from the successful resolution applicant. Nonetheless, Shri Saraswat was not in a position to dispute the fact that the SLP preferr....
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....f the plan, including the manner of distribution of funds among the various classes of creditors. As an example, take the case of a resolution plan which does not provide for payment of electricity dues. It is certainly open to the Committee of Creditors to suggest a modification to the prospective resolution Applicant to the effect that such dues ought to be paid in full, so that the carrying on of the business of the corporate debtor does not become impossible for want of a most basic and essential element for the carrying on of such business, namely, electricity. This may, in turn, be accepted by the resolution Applicant with a consequent modification as to distribution of funds, payment being provided to a certain type of operational creditor, namely, the electricity distribution company, out of upfront payment offered by the proposed resolution Applicant which may also result in a consequent reduction of amounts payable to other financial and operational creditors. What is important is that it is the commercial wisdom of this majority of creditors which is to determine, through negotiation with the prospective resolution applicant, as to how and in what manner the corporate re....
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....s to mean "the estimated realizable value of the assets of the corporate debtor, if they were to be exchanged on the insolvency commencement date between a willing buyer and a willing seller in an arm's length transaction, after proper marketing and where the parties had acted knowledgeably, prudently and without compulsion." However, it was felt that assessment and payment of the fair value upfront, may be difficult. The Committee also discussed the possibility of using 'resolution value' or 'bid value' as the floor to be guaranteed to operational creditors but neither of these were deemed suitable. 18.4 It was stated to the Committee that liquidation value has been provided as a floor and in practice, many operational creditors may get payments above this value. The Committee appreciated the need to protect interests of operational creditors and particularly Micro, Small and Medium Enterprises ("MSMEs"). In this regard, the Committee observed that in practice most of the operational creditors that are critical to the business of the corporate debtor are paid out as part of the resolution plan as they have the power to choke the corporate debtor by cut....
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....here is a difference in payment of the debts of financial and operational creditors, operational creditors having to receive a minimum payment, being not less than liquidation value, which does not apply to financial creditors. The amended Regulation 38 set out in paragraph 77 again does not lead to the conclusion that financial and operational creditors, or secured and unsecured creditors, must be paid the same amounts, percentage wise, under the resolution plan before it can pass muster. Fair and equitable dealing of operational creditors' rights under the said Regulation involves the resolution plan stating as to how it has dealt with the interests of operational creditors, which is not the same thing as saying that they must be paid the same amount of their debt proportionately. Also, the fact that the operational creditors are given priority in payment over all financial creditors does not lead to the conclusion that such payment must necessarily be the same recovery percentage as financial creditors. So long as the provisions of the Code and the Regulations have been met, it is the commercial wisdom of the requisite majority of the Committee of Creditors which is to negot....
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....ooked into and taken care of. It is important to note that even Under Sections 391 and 392 of the Companies Act, 1956, ultimately it is the commercial wisdom of the parties to the scheme, reflected in the 75% majority vote, which then binds all shareholders and creditors. Even Under Sections 391 and 392, the High Court cannot act as a court of appeal and sit in judgment over such commercial wisdom. 66. Section 31(1) of the Code makes it clear that once a resolution plan is approved by the Committee of Creditors it shall be binding on al l stakeholders, including guarantors. This is for the reason that this provision ensures that the successful resolution Applicant starts running the business of the corporate debtor on a fresh slate as it were. 67. For the same reason, the impugned NCLAT judgment in holding that claims that may exist apart from those decided on merits by the resolution professional and by the Adjudicating Authority/Appellate Tribunal can now be decided by an appropriate forum in terms of Section 60(6) of the Code, also militates against the rationale of Section 31 of the Code. A successful resolution Applicant cannot suddenly be faced with "undecid....
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....d the other being revival, the respondents will gain significantly in the later because as per the assessed liquidity value, their dues have been assessed as nil, whereas as per the resolution plan with revival of the industry at the instance of the resolution applicant (the petitioner company herein), their rights have been secured to the extent of Rs. 72 crores odd. It may be emphasized here that the amount of Rs. 72 crores assessed by the resolution professional in favour of the respondent GST Department has already been deposited by the successful resolution applicant i.e. the petitioner company. Therefore, we are of the firm opinion that the respondents would be acting in a totally illegal and arbitrary manner while pressing for demands raised vide the notices which are impugned in this writ petition and any other demands which they may contemplate for the period prior to the resolution plan being finalized. The demand notices are ex-facie illegal, arbitrary and per-se and cannot be sustained. Accordingly, the impugned demand notices and orders viz. notice dated 11.2.2019 (Annex.10), letter dated 7.9.2018 (Annex.11), order dated 20.3.2019 (Annex.12), notice dated 6.3.....