[IBC] Statutory authorities chose not to submit their proof of claim; Delhi High Court quashes show cause issued by Directorate of Revenue Intelligence

Delhi High Court

Delhi High Court: In a petition filed by the petitioner, Sree Metaliks Limited (‘SML’) challenging the show-cause notice issued by the Additional Director General (ADG), Directorate of Revenue Intelligence (DRI), Zonal Unit, Hyderabad (Respondent 2), because it has been issued after the Resolution Plan framed under the aegis of the National Company Law Tribunal, Kolkata Bench (NCLT) received the imprimatur of the National Company Law Appellate Tribunal (NCLAT), a division bench of Rajiv Shakdher and Taravitasta Ganju, JJ., quashed the impugned show cause notice by relying on the judgment and legal position enunciated in Ghanashyam Mishra & Sons Pvt. Ltd. v. Edelweiss Asset Reconstruction Company Ltd., (2021) 9 SCC 657. The Court made clear that the issuance of the impugned show-cause notice is an exercise in futility as despite knowledge, the statutory authorities chose not to submit their proof of claim and later issue show cause.

SML had imported capital goods between October 2005 and November 2011 against e Export Promotion Capital Goods Scheme (EPCG) licenses/authorizations issued in its favour by the DRI/DGFT. The imports against these licenses/authorizations obliged SML to fulfill stipulated export obligations. failing which, vide various communications, an extension of time was sought. SML registered itself under Section 15(1) of the Sick Industrial Companies (Special Provisions) Act, 1985 (SICA), evidencing its financial distress on 18-11-2014.

With the enforcement of the Insolvency and Bankruptcy Code (IBC), SICA was repealed, which left SML in a state of flux, as its reference lodged with Board for Industrial and Financial Reconstruction (BIFR) stood abated in terms of the provisions of the Eighth Schedule of the Code. SML’s woes did not come to an end, as SREI i.e., a financial creditor applied Section 7 of IBC. This triggered the process of forging a Resolution Plan under the Code. The IRP, thereafter, made a Public Announcement on calling upon all the creditors, including operational creditors, such as the respondents to submit their proof of claims.

A specific e-mail dated 17-05-2017 was served on respondent 3 by the Resolution Professional (RP), whereby not only was the said respondent informed that the Corporate Insolvency Resolution Process (CIRP) was on, but also that since SML had been issued summons under Section 108 of Customs Act, 1962, details concerning SML should be furnished to the RP. Admittedly, the DRI/DGFT did not submit their proof of claims. Furthermore, respondent 3 neither replied nor furnished any information, as required by the RP via the e-mail dated 17-05-2017.

Reliance was placed on Ghanashyam Mishra & Sons Pvt. Ltd. v. Edelweiss Asset Reconstruction Company Ltd., (2021) 9 SCC 657, wherein it was held in clear terms as follows:

“102.1. That once a resolution plan is duly approved by the adjudicating authority under sub-section (1) of Section 31, the claims as provided in the resolution plan shall stand frozen and will be binding on the corporate debtor and its employees, members, creditors, including the Central Government, any State Government or any local authority, guarantors and other stakeholders. On the date of approval of [the] resolution plan by the adjudicating authority, all such claims, which are not a part of [the] resolution plan, shall stand extinguished and no person will be entitled to initiate or continue any proceedings in respect to a claim, which is not part of the resolution plan.

102.2. The 2019 Amendment to Section 31 of the I&B Code is clarificatory and declaratory in nature and therefore will be effective from the date on which the I&B Code has come into effect.

102.3. Consequently all the dues including the statutory dues owed to the Central Government, any State Government or any local authority, if not part of the resolution plan, shall stand extinguished and no proceedings in respect of such dues for the period prior to the date on which the adjudicating authority grants its approval under Section 31 could be continued.”

The Court noted that in the instant case, the DRI/DGFT neither submitted proof of claim nor responded to a specific communication via e-mail, addressed to respondent 3. This is a case where despite knowledge, the statutory authorities chose not to submit their proof of claim. Thus, once a Public Announcement was made, it was incumbent upon all creditors, which included the statutory creditors, to submit the proof of claim.

On the submission of the petitioner that the instant Court should not entertain the instant writ petition relying on the doctrine of ‘forum non-conveniens’, the Court observed that this writ petition was filed in March 2021, and the objection concerning the Court’s power to entertain the writ action was taken much later, it would be unfair to return the writ petition, on the ground that this Court is not a convenient forum for adjudicating the dispute arising between the parties.

The Court concluded that if the law, as enunciated by the Supreme Court in Ghanashyam Mishra (supra) is applied, then the dues, if any owed to the respondents would have to be declared as having extinguished, and if such is the position, the adjudication of the impugned show-cause notice would be an exercise in futility.

[Sree Metaliks Limited v. Additional Director General, 2023 SCC OnLine Del 941, decided on 16-02-2023]

Advocates who appeared in this case:

Mr Ramji Srinivasan, Sr. Adv. with Mr Vikash Kumar Jha, Mr Ritu Anand Vishwakarma and Ms Varalika Dev, Advocate for the Petitioner;

Mr Ajit Sharma, Sr. St. Counsel with Mr A. Renganath, Adv. for R-1 to 3. Mr Asheesh Jain, CGSC with Mr Keshav Mann & Mr Gaurav Kumar, Advs. for R-4 to 7.

*Arunima Bose, Editorial Assistant has reported this brief.

Must Watch

maintenance to second wife

bail in false pretext of marriage

right to procreate of convict

Criminology, Penology and Victimology book release

Join the discussion

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.