{"id":250204,"date":"2021-06-23T13:10:47","date_gmt":"2021-06-23T07:40:47","guid":{"rendered":"https:\/\/www.scconline.com\/blog\/?p=250204"},"modified":"2021-06-23T13:36:01","modified_gmt":"2021-06-23T08:06:01","slug":"treatment-of-statutory-dues","status":"publish","type":"post","link":"https:\/\/www.scconline.com\/blog\/post\/2021\/06\/23\/treatment-of-statutory-dues\/","title":{"rendered":"Treatment of Statutory Dues\/Claims after Approval of Resolution Plan\u00a0 Ghanashyam Mishra and Sons (P) Ltd. v. Edelweiss : A case comment"},"content":{"rendered":"

Introduction <\/strong><\/span><\/h3>\n

The Supreme Court of India, vide its recent and very detailed judgment dated 13-4-2021 in Ghanashyam Mishra and Sons (P) Ltd. <\/em>v. Edelweiss Asset Reconstruction Co. Ltd.[1]<\/strong><\/a> <\/em>(GMSPL order) has settled the long pending question of whether statutory creditors, including the Central Government, State Government and any local authority, are bound by a resolution plan, once it is approved\u00a0by\u00a0an adjudicating authority under sub\u00ad-section (1) of Section 31 of the Insolvency and Bankruptcy Code, 2016[2]<\/a> (IBC\/the Code) [as amended vide IBC (Amendment) Act, 2019[3]<\/a> dated 5-8-2019 (the 2019 Amendment)].<\/p>\n

The relevant extracts from the GMSPL order[4]<\/a>, containing the ratio of the judgment, have been reproduced as it is below, for ease of understanding:<\/p>\n

\n

95<\/em>. \u2026 (i<\/em>) Once\u00a0a\u00a0resolution\u00a0plan\u00a0is\u00a0duly\u00a0approved by the adjudicating authority under sub-section (1) of Section 31, the claims as provided\u00a0in the\u00a0resolution\u00a0plan shall\u00a0stand frozen and will be binding on the corporate debtor and its employees, members, creditors, including the Central Government, any\u00a0State Government\u00a0or\u00a0any local authority, guarantors and other stakeholders. On the date of approval\u00a0of resolution plan by the adjudicating authority, all\u00a0such\u00a0claims, which\u00a0are\u00a0not\u00a0a part of the resolution plan shall stand extinguished and\u00a0no\u00a0person\u00a0will\u00a0be\u00a0entitled to initiate or continue any proceedings in respect\u00a0to\u00a0a\u00a0claim,\u00a0which\u00a0is\u00a0not\u00a0part\u00a0of\u00a0the resolution plan; <\/em><\/p>\n<\/blockquote>\n

\n

(ii<\/em>) 2019\u00a0Amendment\u00a0to\u00a0Section\u00a031\u00a0of\u00a0the\u00a0I&B Code is clarificatory and declaratory in nature\u00a0and therefore will\u00a0be effective\u00a0from the\u00a0date\u00a0on which the Code\u00a0has\u00a0come\u00a0into effect;<\/p>\n

(iii<\/em>) consequently, all the dues including the statutory dues owed to the Central Government, any State\u00a0Government\u00a0or\u00a0any local\u00a0authority, if not part of the resolution plan, shall stand extinguished and no proceedings in\u00a0respect of such dues for the period prior \u00a0 to \u00a0 the \u00a0 date \u00a0 on \u00a0 which the adjudicating authority grants its approval under\u00a0Section\u00a031\u00a0could\u00a0be\u00a0continued.<\/em><\/p>\n

(emphasis supplied)<\/p>\n<\/blockquote>\n

Along with the ratio abovementioned, it has also been clarified by the Supreme Court that with respect to any statutory dues owed\/claims raised in relation to the period prior to the 2019 Amendment, the resolution plan shall still be binding on the statutory creditors concerned, and the statutory\u00a0dues owed\u00a0to them, which were\u00a0not included in the resolution plan, and such claims shall\u00a0stand\u00a0extinguished.<\/p>\n

This article attempts to analyse the GMSPL order[5]<\/a>, taking into consideration the various judicial precedents that led up to the said order, as well as whether the analysis of the\u00a0 Supreme Court has addressed the pending issues in totality. The aftermath of the order has also been explored in brief, to understand whether the Supreme Court has been interpreted in the spirit of the Code, or if there exist gaps in the law that are yet to be considered by the courts.<\/p>\n

History of the decision in GMSPL order <\/strong><\/span><\/h3>\n

It is important to note, for the purpose of understanding the relevance of GMSPL order, that Section 14(1)(a<\/em>) of the Code[6]<\/a> prohibits the institution of suits or the continuation of pending suits or proceedings against the corporate debtor (including the execution of any judgment, decree or order in any court of law, tribunal, arbitration panel or other authority), upon admission of the petitions filed under Section 7[7]<\/a> (by financial creditors), Section 9[8]<\/a> (by operational creditors) or Section 10[9]<\/a> (by the corporate debtor itself), and passing of orders for initiation of corporate insolvency resolution process (CIRP). Thus, in terms of Section 14 of the Code, a \u201cmoratorium\u201d is imposed against initiation or continuation of legal proceedings against the corporate debtor.<\/p>\n

Over the past few years, there have been many landmark judgments passed by the Courts in India clarifying the type of \u201cproceedings\u201d that fall under the bar imposed by Section 14, including criminal, arbitral or writ proceedings, as well as proceedings initiated against a corporate guarantor of the corporate debtor, etc. whether or not the same come within the ambit.<\/p>\n

Some of these proceedings considered as hit by the moratorium have been initiated based on disputes inter se two parties, arising out of contract\/arrangement between them. Whereas, other proceedings concern debts owed to the Government exchequer viz. debts or dues owed under a statute\/imposed by the statutory authorities under a statute, being tax arrears, or customs duties arrears, etc. The latter are colloquially known as \u201ccrown debts\u201d or statutory debts.<\/p>\n

In earlier judgments of the Supreme Court, including in Essar Steel (India) Ltd. <\/em>v. Satish Kumar Gupta<\/em>[10]<\/a>, K.\u00a0Shashidhar\u00a0<\/em>v.\u00a0Indian\u00a0Overseas Bank<\/em>[11]<\/a>, Maharashtra Seamless Limited <\/em>v. Padmanabhan Venkatesh<\/em>[12]<\/a>, Karad Urban Coop. Bank Ltd. <\/em>v. Swapnil Bhingardevay<\/em>[13]<\/a> and Kalpraj Dharamshi\u00a0 <\/em>v. Kotak\u00a0Investment\u00a0Advisors Ltd.<\/em>[14]<\/a>, on account of the imposition of the moratorium under Section 14, legal proceedings have been held to not continue and be adjudicated upon\/determined against the corporate debtor. The Courts had held that all such claims, being undecided and disputed claims, are to be submitted to the resolution professional, in order to be addressed in the resolution plan, and that the resolution plan shall be the final authority on such claims if the plan is approved subsequently by the adjudicating authority.<\/p>\n

The\u00a0details\u00a0with\u00a0regard\u00a0to\u00a0all material litigation and an ongoing investigation or proceedings initiated by Government and statutory authorities are required to be contained in the Information Memorandum as disseminated to the prospective resolution applicants, for their reference. In Essar Steels<\/em>[15]<\/a>, it has been categorically laid down that \u201ca\u00a0successful\u00a0resolution\u00a0applicant cannot suddenly be faced with \u2018undecided\u2019 claims after the resolution plan submitted by him has been\u00a0accepted\u201d.\u00a0All\u00a0claims\u00a0must\u00a0be submitted to and decided by\u00a0the resolution professional so that a prospective resolution applicant\u00a0knows exactly what has\u00a0to be\u00a0paid in order and that it may then take over and run the business of\u00a0the corporate\u00a0debtor.<\/p>\n

Therefore, for all intents and purposes, in terms of the various judgments mentioned hereinabove, the undecided claims have been dealt with by resolution professionals and included\/precluded from the resolution plan accordingly. However, no differentiation has been made out by the courts, between claims raised by financial and operational creditors, arising from contract, and claims raised by statutory creditors, as imposed and recoverable under a statute\/application of law created explicitly. A general understanding has been taken by the courts, in terms of IBC alone, leaving much room for interpretation.<\/p>\n

Treatment of undecided claims\/disputed claims by governmental authorities <\/strong><\/span><\/h3>\n

Section 31 of the Code deals with the implications of the approval of a resolution plan, as per which, if the adjudicating authority is satisfied that the resolution plan as approved by the Committee of creditors, 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.<\/p>\n

The entire ambiguity in treatment of undecided or disputed claims by Government\/statutory creditors began with the amendment made to the Code, vide\u00a0S.O. 2953(E)\u00a0dated\u00a016-8-2019[16]<\/a>, being the 2019 Amendment, as per which the following words were inserted\u00a0in\u00a0Section\u00a031\u00a0of\u00a0the Code:<\/p>\n

\n

\u201cincluding the Central Government,\u00a0any State\u00a0Government\u00a0or\u00a0any\u00a0local\u00a0authority to\u00a0whom a debt in respect\u00a0of the payment of\u00a0dues\u00a0arising\u00a0under\u00a0any\u00a0law\u00a0for\u00a0the\u00a0time being in force, such as authorities to whom statutory dues\u00a0are\u00a0owed\u201d.<\/p>\n<\/blockquote>\n

Due to this specific and explicit inclusion, at such later date in the Code, there has been quite some confusion with regard to how the claims\/statutory debts pertaining to the period prior to the 2019 Amendment are to be treated. Therefore, several statutory authorities, due to the lack of differentiation between the types of claims, have decided unilaterally as follows:<\/p>\n

\n

(a<\/em>) their claims should not be rejected by the resolution professional; or<\/p>\n

(b<\/em>) if their claims are not provided for in the resolution plan, as ultimately approved by the adjudicating authority; or if no claims have been submitted to the resolution professional at all by such statutory authorities as creditors, they can initiate afresh\/continue proceedings after approval of the resolution plan, since the moratorium under Section 14 of the Code is lifted upon approval of the plan.<\/p>\n<\/blockquote>\n

Judicial precedents prior to the GMSPL order <\/strong><\/span><\/h3>\n

i. Director General of Income Tax <\/em>v. Synergies Dooray Automotive Ltd.<\/em>[17]<\/a>—<\/em> The National Company Law Appellate Tribunal(NCLAT) in the order dated 20-3-2019[18]<\/a> has held that statutory dues such as \u201cincome tax\u201d, \u201cvalue added tax\u201d and other statutory dues arising out of the existing laws, arise when a company is operational, and hence are \u201coperational debt\u201d under the Code. As per the facts of the case, the grievance of the appellant statutory creditor was that the income tax liability\/demand in respect of the corporate debtor therein amounting to INR 338 crores approximately had been settled for 1% of the \u201ccrystallised demand\u201d to a maximum of INR 2.58 crores approximately in the resolution plan as approved by the CoC. This was challenged before NCLAT as being against the mandate of the Income Tax Act, 1961[19]<\/a> (the IT Act) and that the dues under the IT Act cannot render the IT authorities as an \u201coperational creditor\u201d of the corporate debtor. It is relevant to note that this order was passed prior to the 2019 Amendment, and categorically held that the resolution plan, as approved, shall be final and not subject to modification, even if the statutory claims are not included in the plan. However, while the resolution plan explains that the statutory dues are admitted by the resolution applicant \u201cshall be reduced to the extent already paid by the corporate debtor\u201d, the order does not deal with any refunds of the amounts already paid and not admitted under the plan, if any.<\/p>\n

ii. Ultra Tech Nathdwara Cement Ltd. <\/em>v. Union of India<\/em>[20]<\/a> \u2013 The Rajasthan High Court vide its order dated 7-4-2020, has taken a similar view. Thereunder, the claims of the GST Department of the State of Rajasthan were verified by the resolution professional and included in the plan. However, further statutory dues were raised by the tax authorities, after the finalisation and approval of the resolution plan. The writ petition filed, seeking relief, was dismissed by the Division Bench on account of the interpretation of amended Section 31 of the Code. It was held that any debts that do not already form part of the approved resolution plan will stand invalidated and that the statutory creditors have no right to audience. The Court held that \u201cevaluation of all the dues and liabilities, as they exist on the date of finalisation of the resolution plan, has been left in the exclusive domain of the resolution professional, with the approval of the Committee of creditors\u201d, and cannot be interfered with by courts\/tribunals.<\/p>\n

iii.\u00a0Ultra Tech Nathdwara Cement Ltd. <\/em> State of U.P.<\/em>[21]<\/a> \u2013 As per the facts of this case, the Commissioner (Appeals) concerned under the U.P. Value Added Tax Act, 2008[22]<\/a> (the U.P. VAT Act) had passed an appellate order much after the approval of the resolution plan by the adjudicating authority under Section 31 of the Code. In the order dated 6-7-2020 passed by the Allahabad High Court, where the petitioner sought for a declaration that all other proceedings pending before different authorities be declared to have abated in terms of the \u00a0resolution plan approved, as well as sought the refund of the tax already deposited by it with the statutory tax authorities, the Court held that:<\/p>\n

\n

(a<\/em>) the petitioner has a remedy of filing a second appeal against the appellate order before the Commissioner Tax Tribunal under Section 57 of the U.P. VAT Act[23]<\/a>; and<\/p>\n

(b<\/em>) in connection with the refund of amounts deposited, the petitioner may apply to the authorities concerned.<\/p>\n<\/blockquote>\n

iv. Electrosteels Limited <\/em>v. State of Jharkhand[24]<\/strong><\/a> <\/em>(Division Bench) – A separate view was taken vide judgment dated 1-5-2020 of the Jharkhand High Court, as per which, if<\/p>\n

\n

(a<\/em>) the authority was not aware of the initiation of the corporate insolvency resolution process (CIRP) against the corporate debtor i.e. if the Government was not a part of the resolution process, they can continue proceedings against the corporate debtor;<\/p>\n

(b<\/em>) if such tax amounts have already been collected by a company and not remitted to the tax authorities, the statutory dues may still be claimed from the corporate debtor, and the amounts can be still be recovered from the corporate debtor after the approval of the resolution plan, since the same amounts to criminal misappropriation of the government money entrusted to the corporate debtor;<\/p>\n

(c<\/em>) dues on account of non-remission of VAT, as collected from customers cannot be termed as \u201coperational debt\u201d under the Code; and<\/p>\n

(d<\/em>) the 2019 Amendment is applicable prospectively and hence, cannot be applicable to CIRPs initiated prior to the amendment. It is relevant to note that though no payments have been made\/pre-deposited by the corporate debtor, under the Jharkhand Value Added Tax Act, 2005[25]<\/a> (the JVAT Act) in the facts of the case, on account of a garnishee order issued by the VAT authorities to the banker of the corporate debtor, under Section 87 of the Finance Act, 1994[26]<\/a> (the Finance Act), substantial amounts have been transferred to the VAT authorities, after the resolution plan has been admitted.<\/p>\n<\/blockquote>\n

A glance at the conflicting judgments passed by various High Courts, as abovementioned, would reveal multiple issues addressed vide those judgments, with regard to the treatment of undecided\/disputed claims of statutory creditors after approval of the resolution plan. The GMSPL order[27]<\/a>, which is a combined order also dealing with appeals filed against the orders in Electrosteels case<\/em>[28]<\/a> and Ultra Tech Nathdwara case<\/em>[29]<\/a> (the Uttar Pradesh order),<\/em> should ideally have set at rest all such issues. However, the following points have not been considered or addressed by the Supreme Court:<\/p>\n

A. Refund of the pre-deposit amounts\/pre-maturely appropriated amounts by the authorities<\/span> <\/em><\/strong><\/p>\n

Various statutes provide for a mandatory pre-deposit of amounts (whether pertaining to tax matters or otherwise) when preferring appellate proceedings. While the IT Act does not invite any pre-deposit for invoking the appellate jurisdiction, pre-deposit for appeals can be trailed from the Central Excise Act, 1944[30]<\/a>, the Central Goods and Services Tax Act, 2017[31]<\/a>, the Real Estate (Regulation and Development) Act, 2016[32]<\/a>, the Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Interest\u00a0Act, 2002[33]<\/a>, the Recovery of Debts and Bankruptcy\u00a0Act, 1993[34]<\/a>, the Employees\u2019 Provident Funds and [Miscellaneous Provisions] Act, 1952[35]<\/a>, the Negotiable Instruments Act, 1881[36]<\/a> as well as the Consumer Protection Act, 2019[37]<\/a>. The difference lies in the nature of the proceedings viz. as far as the tax, customs duties, etc. are concerned, the payments are statutory debts owed directly to the exchequer and any pre-deposits made are also directly deposited with the same.<\/p>\n

While the statutes themselves prescribe a procedure for refund of pre-deposited amounts upon the appeal proceedings being decided in favour of the appellant, there remains a doubt as to whether a refund of amounts would be allowed in the event of extinguishment of proceedings after approval of the resolution plan. At the outset, a direction for refund of the amount, particularly from fora such as consumer fora or the Debts Recovery Tribunal (DRT), etc., where the award has already been made in the favour of the creditor party and now pending in appellate stage, makes the entire judicial proceeding futile.<\/p>\n

There are various instances, such as in Ultra Tech Nathdwara case<\/em>[38]<\/a> (Uttar Pradesh order) and Electrosteels case<\/em>[39]<\/a> \u00a0<\/em>hereinabove, as well as by the appellants in GMSPL order[40]<\/a>, where they have deposited partial amounts of the duties or penalties passed against them, in order to prefer an appeal before the appellate authorities\/amounts under such duties and penalties levied have been partially appropriated by the authorities unilaterally.<\/p>\n

It is necessary to note that, vide paras 132 and 149 of the GMSPL Order[41]<\/a>, when faced with the question of refund of amounts already paid, the Supreme Court has held that:<\/p>\n

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\u201cWe\u00a0hold and declare, that the respondents are\u00a0not\u00a0entitled\u00a0to\u00a0recover any claims or claim any debts owed to them from the corporate debtor accruing prior to the transfer date. Needless to state, that the consequences thereof shall follow.\u201d<\/p>\n<\/blockquote>\n

\u00a0<\/em>There is no specific direction as such to the statutory authorities to refund the amounts already deposited.<\/p>\n

It may be noted that, in GMSPL order[42]<\/a>, the Supreme Court while relying on the transcripts of the Rajya\u00a0Sabha\u00a0Debates held on 29-7-2019,\u00a0had noted the legislative intent of the 2019 Amendment as \u201cThe Government will not raise\u00a0or make any\u00a0\u2018further\u00a0claim\u2019 after resolution\u00a0plan\u00a0is\u00a0approved.\u201d This stress on the term \u201cfurther claims\u201d is rendering the status of refunds very uncertain since it does not clarify if the pre-deposited amounts\/already appropriated amounts are to be forfeited or refunded back to the corporate debtor since no \u201cfurther claims\u201d made by such creditors shall involve the sums already paid.<\/p>\n

The Bombay High Court in the recent judgment dated 22-12-2020, in GGS Infrastructure (P) Ltd. <\/em>v. Commissioner of CGST & Central Excise<\/em>[43]<\/a>, has categorically held that the statutory authority shall be duty-bound to refund any balance amounts to the corporate debtor, in terms of the approved resolution plan, after deduction of the amounts determined under the said plan, and that the same is in accordance with law and the Code. The Court observed that there is no question of retaining the said amount and that \u201cit cannot be argued that the State having recovered certain money even though such recovery may be illegal or questionable cannot be compelled to refund the same. Once it is determined that the State is holding money beyond what is legally permissible, it has a binding duty to refund the same\u201d. A reference was made to the Supreme Court judgment in New India Industries Ltd. <\/em>v. Union of India<\/em>[44]<\/a>, <\/em>whereunder it was held that an application under Article 226 of the Constitution of India[45]<\/a> would lie for enforcing the obligation of the State to refund and\/or return the money collected towards illegal tax or dues, and that \u201c<\/em>it would be abhorrent to the principles of justice if the State is permitted to retain money unjustly gained or recovered. The same would have to be refunded\u201d.<\/p>\n

As per the facts of the case, since the authorities had already recovered substantial amounts against the service tax debt that had not yet crystallised, from the bankers of the corporate debtor, by initiating recovery proceedings under Section 87(b<\/em>)(i<\/em>) of the Finance Act, the Court ordered for refund of the recovered amounts.<\/p>\n

A similar stance has been taken by the NCLT, Mumbai Bench in Sundaresh Bhatt <\/em>v. Associate Commissioner of Income Tax<\/em>[46]<\/a>,<\/em> whereunder the Bench held that a conjoint reading of Section 14(1)(a<\/em>) and Section 238 of the Code[47]<\/a>, clearly shows that the Code overrides Section 44 of the Gujarat Value Added Tax Act, 2003 (GVAT) and that any proceedings initiated under the same would be hit by the moratorium under Section 14. That being so, the VAT authorities thereunder had issued letters to the bankers of the corporate debtor and recovered substantial amounts, without any adjudication of the claims under the GVAT. The NCLT had ordered refund of the amounts so appropriated by the VAT authorities back to the corporate debtor.<\/p>\n

\u00a0B. <\/span><\/em><\/strong>Non-inclusion of statutory claims in the resolution plan due to lapse in intimation under Section 13 of the Code <\/em><\/strong><\/span><\/p>\n

The Supreme Court, based on the facts of Electrosteels case<\/em>[48]<\/a> \u00a0<\/em>whereunder the VAT authorities have claimed being uninformed about the CIRP proceedings, in para 146 of the GMSPL order[49]<\/a>, has merely noted that another branch of the State Government has filed its claim before the resolution professional. On account of the same, the Court has deemed it impossible that the VAT Department authorities would not have knowledge of the proceedings. Therefore, in the event that there is a lapse in intimation of any governmental authorities, under Section 13 of the Code[50]<\/a>, read with the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016[51]<\/a>, whether they can continue proceedings\/initiate proceedings afresh against the corporate debtor is not clear from the order.<\/p>\n

It is relevant to note that the Madras High Court vide an order dated 26-4-2021 in Ruchi Soya Industries Ltd. <\/em>v. Union of India[52]<\/strong><\/a>, <\/em>had partly accepted the contention of the assessee-corporate debtor relating to the extinguishment of the rights of the Customs Department to claim customs duty in light of the GMSPL order[53]<\/a>. The High Court, while observing that \u201cCorporate restructuring of financial debt under IBC, 2016 does not mean a waiver of extinguishing of sovereign debts\u201d, ordered the corporate debtor to file an application before the NCLT concerned to get the issue clarified that crown debts like the differential \u201ccustoms duty\u201d payable to the Department under the bill of entry which is the subject-matter of that writ petition were treated as \u201coperational debt\u201d before the NCLT by the corporate debtor, and whether or not the same have been factored in while approving the resolution plan. In the absence of being included in the plan, the customs authorities have been permitted to proceed with recovering the pending duties from the corporate debtor. This exposes that even though the issue has been settled by the Supreme Court, the ambiguity continues with regard to inclusion and non-inclusion of statutory dues or claims in the Plan.<\/p>\n

C. Differentiation between the types of statutory claims\u00a0 <\/em><\/strong><\/span><\/p>\n

Though a clear differentiation has been made in Electrosteels case<\/em>[54]<\/a> \u00a0<\/em>between statutory debts that are directly owed under the statute, such as income tax dues, and VAT dues which are merely to be collected from customers by the corporate debtor and remitted to the authorities concerned, this issue has not been addressed by the Supreme Court. In a limited reference, Synergies Dooray case<\/em>[55]<\/a> \u00a0<\/em>equates statutory debt towards income tax dues and VAT under the same bracket of \u201coperational debt\u201d. The GMSPL order[56]<\/a> is also silent on the point of criminal misappropriation committed by the corporate debtor, on account of collecting funds and failing to remit the same. Therefore, this opens the Pandora\u2019s Box, as to whether companies that deduct tax, provident fund (PF), VAT amounts from their customers\/employers and fail to remit the same can now go scot-free, due to the approval of the resolution plan. In terms of the Electrosteels case<\/em>[57]<\/a>, <\/em>an additional remedy has been offered to the statutory authorities to initiate criminal proceedings against such defaulting corporate debtors and their erstwhile management. This can stand even in the event that their claims have become extinguished after approval of the resolution plan.<\/p>\n

In fact, vide a recent order dated 12-5-2021, as passed by the NCLAT, Chennai Bench, in Regional Provident Commissioner,<\/em> Employees Provident Fund Organisation, Telangana <\/em>v. Vandana Garg, Resolution Professional of M\/s GVR Infra Projects Limited<\/em>[58]<\/a>, the GMSPL order[59]<\/a> has been invoked to hold that the provident fund dues as included in the approved resolution plan shall only be considered for payment, and no person is entitled to initiate or continue any proceedings regarding a claim not forming a part thereof. It is relevant to note that this indirectly deals with the question of the nature of statutory debts such as VAT, which are not direct debts of the corporate debtor itself, but debts owed by a third party that are collected and to be remitted to the statutory authority. Further, this order further establishes that corporate debtors that fail to remit funds shall not be held accountable, placing all the payers of tax, PF, etc. in a difficult position with the Government.<\/p>\n

Conclusion and way forward <\/strong><\/span><\/h3>\n

Though the GMSPL order dated 13-4-2021[60]<\/a> strives to remove legal hurdles with respect to dues owed to or claims made by statutory creditors, there are some glaring issues with respect to the actions to be taken by statutory creditors, as discussed in this article. Litigations continue to be instituted by wary corporate debtors and\/or the successful resolution applicants, to reach closure of all statutory claims and revive their companies.<\/p>\n

Post the passing of the said order, various High Courts and even NCLAT have interpreted the order in their own ways. The Calcutta High Court in the order dated 7-5-2021 in Sirpur Paper Mills Ltd. <\/em>v. I.K. Merchants (P) Ltd.<\/em>[61]<\/a>, has relied on the GMSPL order[62]<\/a> to explain that extinguishment of appellate proceedings does not mean the award already granted shall become confirmed. In the context of deciding whether an arbitral award is confirmed in favour of the award-holder during the pendency of an appeal against Section 34 of the Arbitration and Conciliation Act, 1996[63]<\/a> (the Arbitration Act), after the approval of the resolution plan, the High Court stated that same is not possible since the award amounts have not been included in the resolution plan. The High Court, while observing that \u201cIn essence, an operational creditor who fails to lodge a claim in the CIRP literally missed boarding the claims-bus for chasing the fruits of award even where a challenge to the award is pending in a civil court\u201d, disposed of the petition under Section 34 of the Arbitration Act as infructuous.<\/p>\n

The Madras High Court in Ruchi Soya Industries case<\/em>[64]<\/a> \u00a0<\/em>has clearly taken a different view altogether, as mentioned above, whereas the NCLAT in Vandana Garg case<\/em>[65]<\/a> has expanded the ambit of what kind of statutory debts shall be waived off after approval of the resolution plan. Thus, the matter is still left in limbo.<\/p>\n

At this juncture, litigants may remember that most of the erroneous and adverse judgments passed by the High Courts so far have been set aside through the GMSPL Order[66]<\/a> and all claims thereunder have been pronounced \u201cextinguished\u201d, with a direction that consequences of such extinguishment shall follow. Stakeholders may rely upon the said order, read with the abovementioned precedents, to demand refunds of pre-deposited amounts\/prematurely appropriated amounts with statutory creditors. However, the resolution applicants along with the corporate debtors have to be diligent with the intimation of initiation of CIRP, and approval of resolution plan, to all creditors including the statutory authorities, to avoid any unpleasant issue of notices or claims, even after approval of the resolution plan and handing over of the management to the successor. It is needless to state that the threat of criminal prosecution still rides over the erstwhile management in the event of collection of tax dues\/PF\/VAT amounts and failure to remit the same to the authorities.<\/p>\n

\n

* Joint Partner, Lakshmikumaran & Sridharan Attorneys.<\/span><\/p>\n

** Associate, Lakshmikumaran & Sridharan\u00a0 Attorneys.<\/span><\/p>\n

[1]<\/a> 2021 SCC OnLine SC 313<\/a><\/p>\n

[2]<\/a> http:\/\/www.scconline.com\/DocumentLink\/gvPKCciX<\/a>.<\/p>\n

[3]<\/a> http:\/\/www.scconline.com\/DocumentLink\/bV8o94ba<\/a>.<\/p>\n

[4]<\/a> Supra<\/em> Note 1.<\/p>\n

[5]<\/a> Ibid<\/em>.<\/p>\n

[6]<\/a> http:\/\/www.scconline.com\/DocumentLink\/e2E5pU46<\/a>.<\/p>\n

[7]<\/a> http:\/\/www.scconline.com\/DocumentLink\/K60PW5A6<\/a>.<\/p>\n

[8]<\/a> http:\/\/www.scconline.com\/DocumentLink\/09ftZIDF<\/a>.<\/p>\n

[9]<\/a> http:\/\/www.scconline.com\/DocumentLink\/Kp5IKPzm<\/a>.<\/p>\n

[10]<\/a> (2020) 8 SCC 531<\/a>.<\/p>\n

[11]<\/a> (2019) 12 SCC 150<\/a>.<\/p>\n

[12]<\/a> (2020) 11 SCC 467<\/a>.<\/p>\n

[13]<\/a> (2020) 9 SCC 729<\/a>.<\/p>\n

[14]<\/a> 2021 SCC OnLine SC 204<\/a>.<\/p>\n

[15]<\/a> Supra<\/em> Note 8.<\/p>\n

[16]<\/a> http:\/\/www.scconline.com\/DocumentLink\/Suf357ZI<\/a>.<\/p>\n

[17]<\/a> 2017 SCC OnLine NCLAT 317<\/a>.<\/p>\n

[18]<\/a> Pr. Director General of Income Tax<\/em> v. Synergies Dooray Automotive Ltd<\/em>., 2019 SCC OnLine NCLAT 691<\/a>.<\/p>\n

[19]<\/a> http:\/\/www.scconline.com\/DocumentLink\/7VAV83wS<\/a>.<\/p>\n

[20]<\/a> \u00a02020 SCC OnLine Raj 1097<\/a>.<\/p>\n

[21]<\/a> 2020 SCC OnLine All 1724<\/a>. .<\/p>\n

[22]<\/a> http:\/\/www.scconline.com\/DocumentLink\/wff5uR85<\/a>.<\/p>\n

[23]<\/a> Ibid<\/em>.<\/p>\n

[24]<\/a> \u00a02020 SCC OnLine Jhar 454<\/a><\/p>\n

[25]<\/a> http:\/\/www.scconline.com\/DocumentLink\/EauO9DT1<\/a>.<\/p>\n

[26]<\/a> http:\/\/www.scconline.com\/DocumentLink\/PqGcOrHZ<\/a>.<\/p>\n

[27]<\/a> Supra <\/em>Note 1.<\/p>\n

[28]<\/a> Supra Note 24.<\/p>\n

[29]<\/a> Supra<\/em> Note 21.<\/p>\n

[30]<\/a> http:\/\/www.scconline.com\/DocumentLink\/E4zd0gLl<\/a>.<\/p>\n

[31]<\/a>http:\/\/www.scconline.com\/DocumentLink\/ZN57RKH6<\/a>.<\/p>\n

[32]<\/a> http:\/\/www.scconline.com\/DocumentLink\/u5bCT3Hd<\/a>.<\/p>\n

[33]<\/a> http:\/\/www.scconline.com\/DocumentLink\/1hbkvwWJ<\/a>.<\/p>\n

[34]<\/a> http:\/\/www.scconline.com\/DocumentLink\/2zlK12A4<\/a>.<\/p>\n

[35]<\/a> http:\/\/www.scconline.com\/DocumentLink\/0JY49FoX<\/a>.<\/p>\n

[36]<\/a> http:\/\/www.scconline.com\/DocumentLink\/wgV2j1VM<\/a>.<\/p>\n

[37]<\/a> http:\/\/www.scconline.com\/DocumentLink\/P62rNTsE<\/a>.<\/p>\n

[38]<\/a> Supra<\/em> Note 21.<\/p>\n

[39]<\/a> Supra<\/em> Note 24.<\/p>\n

[40]<\/a> Supra Note 1.<\/p>\n

[41]<\/a> Ibid<\/em>.<\/p>\n

[42]<\/a> Ibid.<\/em><\/p>\n

[43]<\/a>GGS Infrastructure (P) Ltd. v. Commissioner of CGST & Central Excise, 2020 SCC OnLine Bom 10477<\/a>.<\/p>\n

[44]<\/a> 1990 Mh LJ 5.<\/p>\n

[45]<\/a> http:\/\/www.scconline.com\/DocumentLink\/22VRSLhE<\/a>.<\/p>\n

[46]<\/a> 2020 SCC OnLine NCLT 938<\/a>.<\/p>\n

[47]<\/a> http:\/\/www.scconline.com\/DocumentLink\/dQ5LC1RE<\/a>.<\/p>\n

[48]<\/a> Supra Note 24.<\/p>\n

[49]<\/a> Supra Note 1.<\/p>\n

[50]<\/a> http:\/\/www.scconline.com\/DocumentLink\/vmKEerI1<\/a>.<\/p>\n

[51]<\/a> http:\/\/www.scconline.com\/DocumentLink\/1Uw56FFO<\/a>.<\/p>\n

[52]<\/a> Ruchi Soya Industries Ltd<\/em>. v. Union of India<\/em>, 2021 SCC OnLine Mad 2181<\/a><\/p>\n

[53]<\/a> Ibid.<\/p>\n

[54]<\/a> Supra<\/em> Note 24.<\/p>\n

[55]<\/a> Supra<\/em> Note 17.<\/p>\n

[56]<\/a> Supra<\/em> Note 1.<\/p>\n

[57]<\/a> Supra<\/em> Note 24.<\/p>\n

[58]<\/a> 2021 SCC OnLine NCLAT 163<\/a>.<\/p>\n

[59]<\/a> Supra<\/em> Note 1.<\/p>\n

[60]<\/a>Ibid.<\/p>\n

[61]<\/a> 2021 SCC OnLine Cal 1601<\/a>.<\/p>\n

[62]<\/a> Supra Note 1.<\/p>\n

[63]<\/a> http:\/\/www.scconline.com\/DocumentLink\/teuo89l3<\/a>.<\/p>\n

[64]<\/a> Ruchi Soya Industries Ltd.<\/em> v. Union of India<\/em>, 2021 SCC OnLine Mad 2181<\/a>.<\/p>\n

[65]<\/a> \u00a02021 SCC OnLine NCLAT 163<\/a>.<\/p>\n

[66]<\/a> Supra<\/em> Note 1.<\/p>\n","protected":false},"excerpt":{"rendered":"

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