IBC Primacy Reaffirmed – Yet Again

The Hon’ble High Court of Rajasthan (Rajasthan HC) delivered its judgment in the matter of Ultra Tech Nathdwara Cement Ltd v Union of India through the Joint Secretary, Department of Revenue, Ministry of Finance and Ors D.B. Civil Writ Petition No. 9480/2019 in terms of which the Hon’ble Rajasthan HC reaffirmed the primacy of the Insolvency and Bankruptcy Code, 2016 (IBC) over any other law for the time being in force and categorically observed that the provisions of a resolution plan which has been approved by the adjudicating authority (Approved Resolution Plan) is binding on all stakeholders of the corporate debtor, including statutory creditors.

BACKGROUND

Binani Cements Limited (Binani) was referred to corporate insolvency resolution process (CIRP) pursuant to the order dated 25 July 2017 passed by the Kolkata bench of the National Company Law Tribunal in Company Petition (IB) No.359/KB/2017 under the terms of Section 7 of the IBC. Mr Vijay Kumar V. Iyer was appointed as the insolvency resolution professional (RP) of Binani. The RP collated and verified the claims filed by the creditors of Binani, including, inter-alia, by Central Goods and Service Tax Department, Govt. of India (Department) to the extent of INR 72.85 Crores.

The committee of creditors (CoC) of Binani approved the resolution plan submitted by Ultratech Cement Limited (Ultratech) (Ultratech Plan). Subsequently, the Ultratech Plan was approved by the Hon’ble National Company Law Appellate Tribunal vide its order dated 14 November 2018 passed in Company Appeal (AT) Insolvency No.188/2018 (Approval Order). The Approval Order attained finality when the same was upheld by the Hon’ble Supreme Court of India (Supreme Court) vide its order dated 19 November 2018 in Civil Appeal No.10998/2018 (SC Order). Pursuant to the SC Order, Ultratech took over the management and operations of Binani, fully implemented the terms of the Ultratech Plan and made payments to all the creditors of Binani (including statutory creditors such as the Department).

Despite the Ultratech Plan having attained finality and having been duly implemented, the Department addressed numerous demand notices (Demand Notices) in relation to the amounts and interest which became due and payable by Binani prior to the date of commencement of its CIRP. Binani, (under the control and management of Ultratech) eventually addressed a letter dated 26 November 2018 to the Department, duly intimating them of the payment of the amounts to the Department in terms of the Ultratech Plan and that the residual debt stood extinguished under the terms thereof. However, the Department failed to withdraw the Demand Notices. Consequently, Binani filed a writ petition before the Hon’ble Rajasthan HC praying for quashing of the Demand Notices and a mandatory injunction restraining the Department from raising any further Demand Notices in relation to the amounts due and payable by Binani prior to its acquisition by Ultratech, pursuant to the Ultratech Plan (Reliefs). 

ARGUMENTS ADVANCED BY BINANI

Some of the key arguments advanced by Binani to seek the Reliefs are as under:

ARGUMENTS ADVANCED BY THE DEPARTMENT

The principal argument in terms of which the Department challenged the Reliefs sought was that it was not heard by the CoC before finalizing the Ultratech Plan. Accordingly, the Department submitted that the Ultratech Plan was not binding on them.

OBSERVATIONS OF THE HON’BLE RAJASTHAN HC

KEY TAKEAWAYS FROM THE JUDGMENT

The Hon’ble Rajasthan HC has reaffirmed the primacy of the IBC and reiterated that the claims of all the creditors of a corporate debtor, including any tax claims of statutory authorities, will be settled as per the terms and conditions set out in the Approved Resolution Plan and the authority to determine the distribution of the proceeds of a resolution plan solely lies with the CoC. Pursuant to this judgment, there is no room for any additional amounts being claimed by the governmental authorities on the ground that no audience has been granted to any operational/ statutory creditors or that the operational/statutory creditors were not heard/consulted by the CoC while determining the distribution in their commercial wisdom.

This judgment goes a long way in ensuring that not only financial and other operational creditors, but even tax and other governmental departments are more forthcoming in submitting their claims. This would also achieve reduction in the frequency of any adverse actions/ litigations being taken/initiated against the corporate debtors once the Approved Resolution Plan is implemented and dues of various creditors are settled as per the distribution approved by the CoC. This infuses more certainty for prospective resolution applicants/ bidders who are looking to acquire distressed business IBC on a “fresh slate” as envisioned by the Hon’ble Supreme Court in Essar Steel.

-       Rajeev Vidhani (Partner) and Ashwij Ramaiah (Associate)

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