The question whether Government dues can be extinguished under a Resolution Plan has been of much debate, however, a Bench of the Chennai NCLT has put the question to rest for the time being. A Bench of the Chennai NCLT presided by Ch. Mohd Sharief Tariq, Member (Judicial) in the Judgement dated 11.03.19 in the Insolvency Petition of M/s. Star Agro Marine Exports Private Limited; while approving the Resolution Plan has specifically held that “the claims of the Operational Creditors like the income tax department, sales tax department or any other statutory authority’s dues can be waived off under the provisions of the I&B Code, 2016 and the regulations made thereunder while approving the `Resolution Plan”.
The Bench heard arguments on behalf of the Resolution Applicant i.e Seelam Infra Developers Pvt. Ltd. (SIDPL) who was represented by Shri Nakul Sachdeva [Partner Designate – L&L Partners {formerly Luthra & Luthra Law Offices}] Mr. Thriyambak J. Kanan & Mr. Prateek Mishra. The Resolution Professional was represented by Ms. M. Savitha Devi & Ms. R.V Yaiura Devi.
It was argued on behalf of the Resolution Applicant that the term ‘Operational Creditor’ is defined under Sub-Section [20] of Section 5 of the Code and means a person to whom an operational debt is owed. A conjoint reading of the definitions of ‘Operational Creditor’ and “Operational Debt” would reveal that the Central Government, State Government or Local Authority [as the case may be] would be an Operational Creditor qua a Company against whom the said Central Government, State Government or Local Authority [as the case may be] has a debt in respect of payment of dues arising under any law for the time being in force. It was further argued that in view of a conjoint reading of Section 30[2] of the Code with Regulation 37 and 38 of the CIRP Regulations it is clear that there is no legal bar in extinguishing and/or reducing Operational Debts owed to Operational Creditors under a Resolution Plan subject to the condition that the “payment of the debts of operational creditors shall not be less than the amount to be paid to the operational creditors in the event of a liquidation of the corporate debtor under section 53”.
The Bench appreciating the arguments made on behalf of the Resolution Applicant held that if the claims of the Operational Creditors like Income Tax Department, Sales Tax Department or any of the other statutory authorities cannot be met out of the sale of the assets of the corporate debtor in the event of liquidation then no provision could be possible to be made in the `Resolution Plan’. The Bench also clarified that in view of Section 30[2] and Regulation 37 a Resolution Plan shall provide for measures as may be necessary for Insolvency Resolution Process of the Corporate Debtor for maximization of value of its assets by curing or waiving off any breach of the terms of any debt due from the corporate debtor and to reduce the amount payable to the creditors.
Read Order here:
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