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Judgment
Rajasekhar V.K., Member (Judicial)
The Court convened through video conferencing.
Preamble
2.1.The State Bank of India (“Financial Creditor”) filed a petition under section 7 of the Insolvency and Bankruptcy Code, 2016 (“Code”) against Adhunik Alloys and Power Limited (“Corporate Debtor”) which was numbered as C.P. (IB) No. 387/KB/2017. This Adjudicating Authority admitted the Corporate Debtor into Corporate Insolvency Resolution Process (“CIRP”) on 23 August, 2017.
2.2.The interim resolution professional acting in terms of section 15 of the Code and in terms of regulation 6 of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process For Corporate Persons) Regulations 2016 (“CIRP Regulations”) invited claims from all the creditors of the Corporate Debtor and specified the last date for submission of such claims.
2.3.By an order dated 7 December, 2018, this Adjudicating Authority approved the Resolution Plan of the Applicant No. 1 along with a consortium including other Resolution Applicants inter alia being Ghanashyam Mishra and Sons Private Limited, Narbheram Power and Steel Pvt. Ltd., Narbheram Vishram and Transform Steel Pvt. Ltd.
The present Application has been filed by the successful Resolution Applicants seeking for the following reliefs:
a. Stay of the notices and demands, as appearing in Annexure C1 to C32, issued by the Respondent authorities;
b. Quash all proceedings in the impugned notices and demands, as appearing in annexure C1 to C32, issued by the respondent authorities and direct that all such demands are extinguished in terms of the approved resolution plan in terms of order dated 7.12.2018;
c. Pass an order directing that pursuant to the final order dated 7.12.2018 passed by this tribunal in C.P. (IB) No. 387/KB/2017, no proceedings can be initiated against the Applicant No. 2/Corporate Debtor for liabilities pertaining to any period prior to the approval of the Resolution Plan i.e. 7.12.2018;
d. Pass an order directing that the terms of the Resolution Plan approved by this Tribunal by the final order dated 7.12.2018 is binding on the Respondent authorities/Sales Tax Department/VAT Department any other authority and/or person and pass a permanent injunction restraining all of them from taking any action in relation to or in furtherance of any liabilities pertaining to any period prior to 7.12.2018 which is the date of approval of the Resolution Plan by this Tribunal;
e. Restrain the Respondents from raising any further demands or conducting any proceedings for taking any coercive action or steps, until disposal of this matter by this Tribunal;
f. Stay of the notice and demand as appearing in Annexure D and direct the Respondents to accordingly issue the C-forms to the Applicant No. 2 under the applicable law;
g. Direct the Respondent to approve the application of change of name as appearing in Annexure E;
h. Take actions against the Respondents in terms of section 74(3) of IBC, 2016.
Submissions of the learned Counsel appearing on behalf of the Applicants
4.1. The Resolution Plan was filed by Bhagwati Power and Steel Ltd. along with Ghanashyam Mishra and Sons Private Limited, Narbheram Power and Steel Pvt. Ltd., Narbheram Vishram and Transform Steel Pvt. Ltd., which was approved by the Committee of Creditors (“CoC”) by 77.20% voting share and was approved by this Adjudicating Authority on 7 December, 2018.
4.2.The Applicant No. 1 had provided for a lump-sum payment of Rs.441Crore to all the creditors to take over the Corporate Debtor.
4.3.That once the Resolution Plan is approved by the Adjudicating Authority, the same is binding on all the stakeholders of the Corporate Debtor.
4.4.The respondent Authorities issued various demand/order/show-cause/remand notices to the Applicant No. 2 after approval of the Resolution Plan on 7 December, 2018as follows:
a. Revision Petition No. JR 50/2013- Revised Assessment Order under section 40(2) of Jharkhand Value Added Tax Act, 2005 (“JVAT Act”) being notice of demand no. 2500 dated 23.06.2012 for Rs.18,05,932/- by the Respondent No. 1 for the period of 2009-10.
b. Revision Case No. CC(S) 455/2016- Assessment Order under section 40(1)(e) of JVAT Act, being Demand No. 13533 dated 29.02.2016 for Rs.71,12,336/- by the Respondent No. 1 for the period 2010-11.
c. Revision Case No. CC(S) 456/2016- Assessment Order under section 40(1)(e) of JVAT Act, being Demand No. 13584 dated 01.03.2016 for Rs.69,57,440/- by the Respondent No. 1 for the period 2011-12.
d. Revision Case No. CC(S) 432/2016- Assessment Order under section 35(6) of JVAT Act, being Demand No. 14414 dated 15.03.2016 for Rs.2.76Crore by the Respondent No. 1 for the period 2012-13 (VAT) (ITC dispute).
e. Revision Case No. CC(S) 456/2016- Assessment Order under section 40(1)(e) of JVAT Act, being Demand No. 13584 dated 01.03.2016 for Rs.69,57,440/- by the Respondent No. 1 for the period 2011-12.
f. Revision Case No. CC(S) 450/2016- Assessment Order under section 9(2) of the Central Sales Tax Act, 1956 being Demand No. 14415 dated 15.03.2016 for Rs.4.57Crore by the Respondent No. 1 for the period 2012-13(CST).
g. Revision Case No. CC(S) 451/2016- Assessment Order under section 40(2)(a) of JVAT Act, being Demand No. 13599 dated 01.03.2016 for Rs.12,34,369/- by the Respondent No. 1 for the period 2013-14(VAT).
h. Revision Case No. CC(S) 452/2016- Assessment Order under section 40(2) of JVAT Act, being Demand No. 13600 dated 01.03.2016 for Rs.1,41,09,726/- by the Respondent No. 1 for the period 2014-15(VAT).
i. Revision Case No. CC(S) 453/2016- Assessment Order under section 40(2) of JVAT Act, being Demand No. 13602 dated 01.03.2016 for Rs.34,68,293/- by the Respondent No. 1 for the period 2015-16(VAT) (ITC MISMATCH).
j. Revision Case No. CC(S) 191/2015- Assessment Order under section 40(2) of JVAT Act, being Demand No. 18146 dated 26.05.2015 for Rs.17,99,233/- for the assessment period 2012-13(VAT).
k. Revision Case No. CC(S) 485/17-18- Assessment Order under section 33(2) of JVAT Act, being Demand No. 12736 dated 26.12.2017 for Rs.65,86,884/- by the Respondent No. 1 for the period 2016-17 (VAT)(ITC MISMATCH).
l. Appeal No. AP/VAT-33/18-19- Assessment Order No. 17/18-19 under section 35(6) of JVAT Act, being Demand No. 38 dated 03.04.2018 for Rs.1,57,78,365/- by the Respondent No. 1 for the assessment year 2015-16(VAT).
m. Appeal No. AP/CST-04/18-19- Assessment Order No. 18/18-19 under section 35(6) of JVAT Act, being Demand No. 39 dated 03.04.2018 for Rs.1,45,18,852/- by the Respondent No. 1 for the assessment year 2015-16(CST).
n. Appeal No. AP/VAT/A-40/17-18- Assessment Order under section 35(6) of JVAT Act, being Demand No. 12894 dated 28.12.2017 for Rs.5,54,69,924/- for the assessment year 2014-15(VAT).
o. Appeal No. AP/CST/A-27/17-18 Assessment Order No. under CST Act, being Demand No. 12895 dated 28.12.2017 for Rs.19,92,543/- for the assessment year 2014-15(CST).
p. VAT and CST- Assessment Year 2016-17- The Respondent No. 2 issued a notice of hearing, being Notice No. 1340 dated 18.04.2019 to the Applicant No. 2.
q. VAT and CST- Assessment Year 2017-18- The Respondent No. 1 issued a notice of hearing, being Notice No. 9011 dated 24.08.2019 and Notice No. 10454 dated 28.01.2020 to the Applicant No. 2.
r. Entry Tax- Assessment Year 2011-12- Respondent No. 1 issued a notice under section 11(5) of Entry Tax Act, 2011 and under rule 14 of Entry Tax Rules, being Notice No. 2764 dated 09.05.2019 to the Applicant No. 2.
s. Entry Tax- Assessment Year 2012-13- Respondent No. 1 issued a notice under section 11(5) of Entry Tax Act, 2011 and under rule 14 of Entry Tax Rules, being Notice No. 2765 dated 09.05.2019 to the Applicant No. 2.
t. Entry Tax- Assessment Year 2013-14- Respondent No. 1 issued a notice under section 11(5) of Entry Tax Act, 2011 and under rule 14 of Entry Tax Rules, being Notice No. 2766 dated 09.05.2019 to the Applicant No. 2.
u. Entry Tax- Assessment Year 2014-15- Respondent No. 1 issued a notice under section 11(5) of Entry Tax Act, 2011 and under rule 14 of Entry Tax Rules, being Notice No. 2767 dated 09.05.2019 to the Applicant No. 2.
v. Entry Tax- Assessment Year 2015-16- Respondent No. 1 issued a notice under section 11(5) of Entry Tax Act, 2011 and under rule 14 of Entry Tax Rules, being Notice No. 2768 dated 09.05.2019 to the Applicant No. 2.
w. Entry Tax- Assessment Year 2016-17- Respondent No. 1 issued a notice under section 11(5) of Entry Tax Act, 2011 and under rule 14 of Entry Tax Rules, being Notice No. 2769 dated 09.05.2019 to the Applicant No. 2.
x. Entry Tax- Assessment Year 2017-18- Respondent No. 1 issued a notice under section 11(5) of Entry Tax Act, 2011 and under rule 14 of Entry Tax Rules, being Notice No. 2770 dated 09.05.2019 to the Applicant No. 2.
y. Assessment Year 2006-07- The Respondent No. 1 issued a notice under section 42(1) of JVAT Act, being Notice No. 2758 dated 09.05.2019 to the Applicant No. 2.
z. Assessment Year 2007-08- The Respondent No. 1 issued a notice under section 42(1) of JVAT Act, being Notice No. 2759 dated 09.05.2019 to the Applicant No. 2.
aa. Assessment Year 2008-09- The Respondent No. 1 issued a notice under section 42(1) of JVAT Act, being Notice No. 2760 dated 09.05.2019 to the Applicant No. 2.
bb. Assessment Year 2009-10- The Respondent No. 1 issued a notice under section 42(1) of JVAT Act, being Notice No. 2761 dated 09.05.2019 to the Applicant No. 2.
cc. Assessment Year 2010-11- The Respondent No. 1 issued a notice under section 42(1) of JVAT Act, being Notice No. 2762 dated 09.05.2019 to the Applicant No. 2.
dd. Assessment Year 2011-12- The Respondent No. 1 issued a notice under section 42(1) of JVAT Act, being Notice No. 2763 dated 09.05.2019 to the Applicant No. 2.
ee. Assessment Year 2015-16- The Respondent No. 1 issued a notice under section 70(1) of JVAT Act, being Notice No. 14845 dated 23.11.2019 to the Applicant No. 2.
ff. Assessment Year 2017-18- The Respondent No. 5 issued a notice of hearing, being Notice No. 600 dated 11.06.2019 to the Applicant No. 2.
gg. Demand letter being Letter No. 247 dated 21.05.2020, by the Respondent No. 2 for payments of Rs.1,67,17,446 (earlier dues).
4.5.The above claims were never lodged before the erstwhile Interim Resolution Professional or the erstwhile Resolution Professional at any stage during the CIRP period despite the fact that the erstwhile Resolution Professional had informed the Respondents vide a letter dated 06 September, 2017, that the Corporate Debtor was admitted to CIRP.
4.6.The assessment orders and demand notices pertain to the period prior to the approval of the Resolution Plan.
4.7.The Respondents did not file any claim with the erstwhile Resolution Professional during the CIRP period.
4.8.The approved Resolution Plan has been duly implemented and the manufacturing unit at the factory of the Corporate Debtor in Kandra, Jharkhand, is in operation.
4.9.As per the approved Resolution Plan, the Operational Creditor were paid in priority to the Financial Creditors and the Resolution Applicant had proposed the payment of Rs.12.87Crore to the Operational Creditors.
4.10. The Resolution Applicant had stated in the Resolution Plan that any claims and contingent liabilities made after the approval of the Resolution Plan and such creditors shall not be entitled to receive any payment by the Applicants. The same was provided at Point No. 3 (c), (d), (e), (f), (i) at Pages 18-21 of the Resolution Plan and Section D at Pages 25-26 of the Resolution Plan.
4.11. In terms of the approved resolution Plan, any unclaimed statutory liabilities payable by the Applicant No. 2 (including without limitations, claims under all taxes, fines from authorities and provident fund payments) existing as at the date of the approval of the Resolution Plan, whether or not recorded in the books of accounts has been written off.
4.12. It was also stated in the Resolution Plan that the Applicant would not be required to meet any liabilities arising prior to the approval of the Resolution Plan including but not limited to tax liability, which include indirect tax liability and direct tax liability and any contingent liabilities.
4.13. The present I.A. is covered by the judgment of the Hon’ble Supreme Court in Committee of Creditors, Essar Steel v. Satish Kumar Gupta & Ors., (2020) 8 SCC 531 dated 15 November, 2019 (paragraph 67 and 97) and all the demand notices, orders and proceedings of the Respondents till date are to be quashed.
4.14. That if any claim and liability prior to the approval of Resolution Plan is pressed upon the Applicant No. 1, the intention to revive the Applicant No. 2 will be jeopardised and the objective of the Code will fail in its entirety.
4.15. The Applicant No. 1 is facing grave difficulty with the Respondents. The Respondent No. 2 has refused to issue C-Form unless the past payments are made.
4.16. The claims of the Respondents are illegal in nature and has relied on the judgement of the Hon’ble High Court of Rajasthan in Ultra Tech Nathdwara Cement Ltd. v. Union of India D.B. Civil Writ Petition No. 9480/2019 dated 07 April 2020 (paragraphs 25 and 26) wherein the Hon’ble high Court quashed the demand of the authorities and opined that such authorities are acting in a totally illegal and arbitrary manner while pressing for demands raised prior to the approval of Resolution Plan.
4.17. The Respondents have issued several demand notices after the filing of this Application on 21 August, 2020, 03 October, 2020 and 25 March, 2021.
4.18. The learned Counsel placed reliance on Ghanashyam Mishra and Sons Private Limited v. Edelweiss Asset Reconstruction Company Limited and Others 2021 SCC OnLine SC 313 dated 13 April, 2021 wherein the Hon’ble Supreme Court has held that the Statutory Authorities are not entitled to any claims from the Corporate Debtor accruing prior to the transfer date.
4.19. Reliance has also been placed on Culrossn Opportunities SP & Anr. v. Sharon Bio Medicine Limited MA 1225/2019, MA 897/2019, MA 1468/2019 in CP(IB) 246/(MB)/2017 dated 06 February 2020 and Palogix Infrastructure Private Limited v. The General Manager, Eastern Railway & Ors. I.A.(IB) No. 614/KB/2020 in C.P. (IB) No. 37/KB/2017 dated 25 November, 2021 (paragraphs 8 and 9).
Notice was served on the Respondents. Respondents No. 1 to 3 have entered appearance and have filed their reply. The Respondent No. 4 and 5 did not appear, hence the matter was heard ex-parte against Respondents No. 4 and 5.
Submissions of the learned Counsel appearing on behalf of the Respondents No. 1, 2 and 3
6.1.The erstwhile Resolution Professional did not prepare a correct list of liabilities along with the assets of the Corporate Debtor as on the date of initiation of CIRP. The Companies show dues of the Tax Authorities as contingent liabilities as per the Accounting Standard specified by the Government.
6.2.That the Resolution Applicant did not estimate the amount to be crystallised as final operational debt after due adjudication.
6.3.That Page 164 of the Resolution Plan mentions that the contingent claims/statutory liabilities to be infused in AAPL within 89 days from the Effective Date shall be utilised by the Resolution Applicant at its sole discretion. Hence, it is clear that the contingent liabilities were taken into account but the words “sole discretion” of the Resolution Applicant shows the intention that the Resolution Applicant had no intention to pay the dues under contingent liabilities.
6.4.That the erstwhile Resolution Professional, CoC and the Interim Resolution Professional have manipulated their position and have sought directions from the Adjudicating Authority to waive off the contingent liabilities. No such prayer could have been made in a Resolution Plan. No separate Application was filed for the same directions.
6.5.That the Adjudicating Authority has no right to write off the contingent liabilities as there is not such authority vested in law.
6.6.There is no authority in law to provide NIL Liability in respect of any other claims in the Resolution Plan by the Resolution Professional and the CoC. The majority of votes in CoC can’t overtake the mandate of law and as such the contentions are ludicrous and an admission of their fraud committed against the contingent claims and the Respondents. The fraud is a nullity in law and hence not binding on the Respondents.
6.7. Point 3(c) at Page 18 of the Resolution Plan is ex-facie fraud against the law and this Adjudicating Authority along with the Resolution Professional and the CoC failed to make any reasonable estimate of the contingent liabilities which had the potential to crystalise and make provision for the same.
6.8.That arbitrary write off of statutory liabilities without any such authority in law is tantamount to financing the revival of the Corporate Debtor by the Government Revenue.
6.9.There is no law supporting the proposition that if any creditor fails to submit claim to the Resolution Professional prior to the date on which the Resolution Plan is approved by the CoC, loses his claim and as such the contention is fraud against the Law and an open advocacy of misappropriation of public money.
Analysis and Findings
7.1.Heard the learned Counsel appearing for the Applicant and the learned Counsel appearing for the Respondents No. 1 to 3.
7.2.On perusal of the record, it is clear that the demand and show-cause notices sent by the Respondents to the Applicant pertain to the period before the approval of Resolution Plan.
7.3.The Respondents have raised a contention that the Resolution Professional erred in his duty and was duty bound to prepare the list of creditors from the financial statements of the Corporate Debtor. Section 18(b) of the Code is clear that the Resolution professional shall receive and collate all the claims submitted by the creditors to him pursuant to the public announcement. It is well recognised in law that statutory claims fall under the category of operational creditors. Regulation 7 of the CIRP Regulations requires that a person claiming to be an operational creditor, other than workman or employees of the Corporate Debtor, shall submit claim with proof to the Interim Resolution Professional in person, by post or by electronic means in Form B of the Schedule.
7.4. The Hon’ble Supreme Court in Swiss Ribbons Pvt. Ltd. and Ors. v. Union of India MANU/SC/0079/2019 dated 25 January 2019 has clearly observed that the Resolution Professional is really a facilitator of the resolution process, whose administrative functions are overseen by the CoC and by the Adjudicating Authority. Hence, the Resolution Professional was right in not taking into account any claim that had not been filed with him.
7.5.The issue of the present I.A. and the contentions raised by the Respondents have already been decided by the Hon’ble Supreme Court in Ghanashyam Mishra and Sons Private Limited v. Edelweiss Asset Reconstruction Company Limited and Others 2021 SCC OnLine SC 313 dated 13 April, 2021, wherein the Hon’ble Supreme Court has categorically held in paragraph 95(i) that once a Resolution Plan is duly approved by the Adjudicating Authority under Section 31(1), the claims as provided in the Resolution Plan shall stand frozen and will be binding on the Corporate Debtor, its employees, members, members, creditors including the Central Government, any State Government or any legal authorities, guarantors and other stakeholders. It further held that 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 proceeding with respect to a claim which is not part of the Resolution Plan.
7.6.The contentions raised by the Respondent with respect to the power of the Adjudicating Authority and the legality of the Resolution Plan is squarely covered in Ghanashyam Mishra SUPRA. we find no merit in the contentions raised by the Respondents.
7.7.The objective of the Code is to revive the Corporate Debtor and give it a fresh start by allowing the Corporate Debtor to commence on a clean slate. The successful Resolution Applicant cannot be expected to revive the Corporate Debtor and be haunted by the past of the Corporate Debtor in the present (after approval of Resolution Plan) and in the future.
In view of the above judgment and the position noticed in the Regulations, the Respondents are directed to abide by the terms of the approved Resolution Plan dated 07 December, 2018. In these circumstances, the prayers made by the Applicant are allowed.
With respect to the change in name of the Corporate Debtor and issuance of Form C by the Respondents, the Applicant is directed to file the requisite forms and pay the fees required for the same. The Respondents shall consider the same keeping in mind the objectives of the Code.
I.A. (IB) No. 772/KB/2020 in C.P. (IB) No. 37/KB/2017 is allowed with the above directions and is hereby disposed of.
The Registry is directed to send email of the order forthwith to all the parties and their ld. Counsel for information and for taking necessary steps.
Certified copy of this order may be issued, if applied for, upon compliance of all requisite formalities.
File be consigned to records.