In the Insolvency Resolution Process for Corporate Persons, an issue is generally discussed as to the status of statutory dues payable by the Corporate Person – whether a resolution plan which ignores/waive off the statutory demands payable to state governments, or legal authorities, is liable to be rejected ?. In light of numerous erstwhile judicial interpretations which supports and recognizes the statutory provision relating to position of statutory debts and dues payable to central and state government and local authorities under IBC , it is well settled that Operational debt includes statutory debts and dues owing to the Central, state, as well as any local authorities. As a result, these creditors are also to be considered as operational creditors and their claim cannot be disregarded in any resolution plan under the IBC.
In the year 2021, there was many arbitral cases which was then appealed at supreme court. There were many judgements which emerged from arbitration. Three judgements for instance are listed below:
The statutory dues which would otherwise falls under clause (e) of Section 53(1) will now be on the same plane with other specified debts including debts on account of workman’s dues for a period of 24 months preceding the liquidation commencement date, as the debts owed to a secured creditor include the State under the GVAT Act. However, this will invite the state of dubiety and will be Greek to the Resolution Professionals if not been interceded by the Legislature by way of an amendment keeping in mind the intent of the Insolvency and Bankruptcy Code, 2016.
There would be a blatant violation of Sections 14 or 33(5) of the IBC if demand notices were sent out to seek enforcement of customs dues during the moratorium period. This is so because the demand notices are the beginning of formal legal action against the Corporate Debtor. The foregoing analysis, however, would be incomplete unless this Court also considered the scope of the respondent authorities' legal authority during the IBC's moratorium period. The only action the government can take is to figure out what taxes, interest, fine, or penalties are owed. The authority, however, is not permitted to enforce a claim for recovery or levy interest on the tax due during the moratorium. In this case, the relationship between the IBC and the Customs Act is perfectly captured by the ratio above.
It is clear from the observation of the Hon’ble NCLAT that the Adjudicating Authority does not possess powers to impose fine under section 235A. This judgment also tries to explain the nuances between the various legal jargons such as ‘fine’ and ‘penalty’ under the scheme of IBC. The judgement appears to be correct in terms of the IBC scheme, and it is also supported by the logic for placing this provision under Part V and right above Section 236.
The Insolvency Bankruptcy Code, 2016 was a ground-breaking legislation which led a new way for resolution of corporate insolvency in a time-bound manner, to ensure value maximization in the best interests of stakeholders. As mentioned in the preamble of the Code its main aim was to promote entrepreneurship, availability of credit and balance the interests of all the stakeholders. But, the jurisprudential flow of IBC has taken a hit in the past six years in terms of application of the Code, despite its constitutionality being already upheld.
Vidarbha Power Industries Limited Vs Axis Bank is a landmark case law and the Hon’ble supreme court has given a new ground of defence for corporate debtor for revival of companies which actually are not at fault and critically evaluating the situation Supreme court has imposed more duty upon Adjudicating authority to scrutinize and verify the contentions of the parties and their stance for default of debt.
The observation there as well rests upon the commercial wisdom of the CoC and the mechanism vested in the code and regulations made thereunder. The apex court stressed on the contention that financial and operational creditors cannot be treated on an equal footing owing to the fact that both represent different classes of creditors. The apex court in Essar Steel’s judgment has devised a point of difference between the financial creditors and operational creditors by stating that “financial creditors” are in the business of lending and it is by way of the interest that they make money. Further, they finance the capital requirements of businesses to enable them to set up and sustain their establishments. The Operational creditors on the other hand are beneficiaries of such lending inasmuch as they receive payments for providing the services to the corporate debtor which forms the working capital of the latter. Therefore, upon drawing such reasoning in cases of conflict, the payment to lenders would always be prioritized.
Waiver & Acquiescence vis-à-vis Kalpraj Dharamshi v. Kotak Investment Advisors By Reema Jain, Law student at Symbiosis Law School, Hyderabad I. INTRODUCTION The Insolvency and Bankruptcy Code 2016 (Code) restructured India’s failing Insolvency Resolution regime. The Bankruptcy Law Reform Committee…