D.B. Civil Writ Petition No. 9480/2019
Re: Ultra Tech Nathdwara Cement Ltd. vs. Union of India & Others
Facts of the Case:
UltraTech was one of the Resolution Applicants in the CIRP of Binani Cement Ltd. initiated by Bank of Baroda for non payment of debt under section 7 of IBCode, 2016 and filed before the NCLT Kolkata Bench. UltraTech Nathdwara Cement Ltd approached the Rajasthan High Court being aggrieved of the demands raised vide multiple notices by the respondent Central Goods and Service Tax (“GST”) Department.
The NCLT contemplating the resolution plan, duly approved the payment to be made by the petitioner company to all the creditors. The Resolution Professional (“RP”) assembled all the claims of the operational creditors after following the due process of law and with due diligence verified the claim of the respondent GST Department to the extent of Rs. 72.85 crores towards liabilities of excise duty and service tax dues. The RP also determined that liquidation value of the Binani Cement Ltd. was Rs.2300 crores which was much less than the outstanding debt and thus, the liquidation value available to the operational creditors including the respondent revenue would be zero.
Pursuant to the resolution plan approved by the NCLAT vide order 14.11.2018, the Bank of Baroda being a financial creditor challenged the resolution plan affirmed by the NCLAT before the Hon’ble Supreme Court which affirmed the order of the NCLAT vide order dated 19.11.2018.
The petitioner company Ultra Tech took over the management and operations of Binani Cement pursuant to receiving the final seal of approval of the resolution plan and changed the name of the company to Ultra Tech Nathdwara Cement Ltd. The resolution plan was fully carried out and payments were duly made to all the creditors including the statutory creditor. In defiance to the resolution plan having attained its finality and having been executed, the respondents (GST Dept) herein have raised numerous demands from the petitioner for the period April 2012 to June 2017 and interest upto 25.7.2017. The petitioner company having paid the dues in full and final as proposed by the resolution professional, addressed a letter dated 26.11.2019 to the respondents informing them of the payment of dues as admitted by the CIRP and reminded them that all remaining claims and proceedings stood extinguished in terms of the resolution plan. Since the petitioner company did not get any positive response from the respondents hence approached this Court through this writ petition under Article 226 of the Constitution of India seeking the relief referred to supra.
Arguments of parties:
Learned Counsel for the petitioner company urged that the IBC is a special law which has been ordained for the purpose of bringing out an industry from distress and to ensure that its assets do not go to waste by liquidation. He contended that the resolution plan submitted by the resolution professional attained finality after approval by the COC and cannot be questioned in a court of law. It was further submitted that the financial creditors are given precedence in the scheme of the Act when the resolution plan is being finalized and the statutory and operational creditors have to make a sacrifice.
The Learned Counsel further contended that the approved resolution plan has been affirmed by the NCLAT by a well-reasoned judgment dated 14.11.2018 passed in Company Appeal (AT) Insolvency No.188/2018 and thereafter, by Hon’ble the Supreme Court vide order dated 19.11.2018 passed in Civil Appeal No.10998/2018 and thus, the respondents authorities of GST Department had no jurisdiction to raise demands from the petitioner for the period prior to the date on which, the petitioner company took over the company under liquidation i.e. Binani Cement Ltd after the resolution plan was finalized and approved. Therefore they fervently urged that the writ petition deserves acceptance and the impugned notices as well as any future demands deserved to be quashed aside. Also the respondents to be restraint from raising any future demands from the petitioner towards the goods and service tax for the period prior to the resolution plan being finalized.
Learned Counsel for the respondents profoundly and fervently opposed the submissions advanced by the petitioner’s counsel. He 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.
Decision of the Rajasthan High Court:
The Hon’ble Rajasthan High Court held that the said issue turns around simple point that the resolution plan approved by the CoC is binding on the department or not. In this regard, it is trite to note that as per the amended 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 Central Govt., 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 is owed. It also further clarified the legislative intent behind the amendment in Section 31(1) of the IBC in the following terms-
There is also this question about indemnity for successful resolution applicant. The amendment now is clearly making it binding on the Government. It is one of the ways in which we are providing that. The Government will not raise any further claim. The Government will not make any further claim after resolution plan is approved. So, that is going to be a major, major sense of assurance for the people who are using the resolution plan.
The purpose of the IBC is salutary as it has been enacted to ensure that an industry under distress does not fade into oblivion and can be revived by virtue of the resolution plan. Once the offer of the resolution applicant is accepted and the resolution plan is approved by the appropriate authority, the same is binding on all concerned to whom the industry concern may be having statutory dues. No right of audience is given in the resolution proceedings to the operational creditors viz. the Central Govt. or the State Govt. as the case maybe.
The High Court considered in the light of the ratio of the Essar Steel judgement where it was stated that minimum value that is required to be paid to operational creditors under a resolution plan is set out under section 30(2)(b) of the IBCode, 2016 as being the amount to be paid to such creditors in the event of a liquidation of the corporate debtor. Under section 53 and the stance of Hon’ble Finance Minister before the upper house of the Parliament on the amendment in section 31, it is clear that the financial creditors have to be given precedence in the ratio of payments when the resolution plan is being finalized. It is the financial creditors who are given right to vote in the CoC whereas, the operational creditors viz Commercial Taxes Department of the Central Government or the State Government as the case maybe, have no right of audience. 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 all 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.
For the same reason, the evaluation of all dues and liabilities as they exist on the date of finalization of the resolution plan have been left in the exclusive domain of the resolution professional with the approval of the CoC. The courts are given an extremely limited power of judicial review into the resolution plan duly approved by the COC. In the case at hand, the situation has proceeded much further. The operational creditors i.e. the Commercial Taxes Department of Govt. of Rajasthan as well as the respondent Commissioner of Goods and Service Tax assailed the resolution plan by filing appeals before Hon’ble the Supreme Court with a specific plea that their dues have not been accounted for by the COC in the resolution plan. The objection so raised stands repelled with the rejection of the appeals by Hon’ble Supreme Court. In addition thereto, it may be mentioned here that from the two possible situations; one being liquidation and 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 companyAccordingly, the impugned demand notices /orders and any further demands pending as on the date of finalization of the resolution plan issued/raised by the respondents GST Department, were quashed and struck down. The High Court further held that the respondents would be acting arbitrarily by sending notices which are impugned in this said writ petition. The notices of GST Department were held illegal and cannot be supported.
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