Approve Resolution Plan binding only on Party Involved Plan

 

Approved Resolution Plan is binding only on those parties involved in the resolution plan-Electrosteel Steels Limited Vs. The state of Jharkhand – Jharkhand High Court

The ruling of the High Court: I.

The tax collected from customers is not “Operation Debt” in accordance with the Code:

The amount of VAT had to be paid by the applicant Company to the customers. In that regard, it is questionable whether the amount of VAT is covered by the terms ‘debt in respect of payment of duties arising under any law for the time being in force and payable to the central government of any State Government,'[(Sec. 5(21)] in order to bring it within the definition of ‘operational debt,’ as defined in the Code.

This tax burden can very well be allowed to treat as the amount of tax already accrued by the applicant Company from its customers, on behalf of the Government of the State, and not the direct debt of the petitioner Company to the Government of the State.

In which case the tax liabilities of the petitioner Company, in respect of which the disputed garnishee order has been issued, may not fall within the scope of the definition.

Decisions cited by the learned counsel for the petitioner at Embassy Property Developments Pvt. The case of Ltd., and in the case of Monnet Ispat and Energy Ltd., is of no help to the applicant company as it relates to income tax fees, which were the direct debts of the corporate debtors in those cases.

Read Also: Drafting and Negotiating of Resolution plan under CIRP under IBC

II. The amendment to Sec. 31(1) of the approved resolution plan, binding on the Government Authorities is prospective in nature:

It is also appropriate to mention here that Section 31(1) of the 2016 Code was amended empty IBC (Amendment) Act, 2019, in order to make the approved resolution plan binding on the government authorities in relation to the statutory fees. It is pursuant to this amendment that the rights of the Government Authorities for statutory fees have been affected and that right has been made subject to the approved resolution plan.

The said amendment was made effective from 16.08.2019, which is prospective in nature, and there was no express retroactive effect on the said amendment. This amendment removes the substantive right of the Government Authorities in relation to statutory fees and therefore any interpretations thereof. It would be unreasonable and unfair to give a retrospective effect to the said amendment.

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