UltraTech Nathdwara Cement’s Case And the Implications of Resolution Plan in Insolvency Bankruptcy Code

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The recent relief given by Rajasthan High Court highlights the issue affecting effective resolution applicants under the Insolvency and Bankruptcy Code, 2016 (“IBC”) is regarding government claims relating to the period preceding the endorsement of the Resolution Plan. Government claims, for example, those raised by the Income Tax Department, Central and State GST Department, quenched by resolution plans keep on being sought after by such departments by method for issuance of demand sees under individual rules.

UltraTech Nathdwara Cement Ltd. (some time ago Binani Cements Ltd.) (“UNCL”) had recorded a Writ Petition on the issue in the Rajasthan High Court, Jodhpur, for subduing the demand sees/orders gave by the Tax Departments as for levy relating to the period preceding the endorsement of the Resolution Plan. The demand sees and so on was basically regarding conflict for the period before the corporate insolvency resolution challenged by the Corporate Debtor, for example, Binani Cements Ltd.

In this particular case “Binani Cement was acquired by the Aditya Birla Group cement company through corporate insolvency resolution process (CIRP) in 2018 for ₹7,900 crores. Later, it was renamed UltraTech Nathdwara Cement.”

Judgement was given on the following basis

On Tuesday, a division bench of Rajasthan High Court comprising Justices Sandeep Mehta and Vijay Bishnoi, while allowing the plea filed by UltraTech, gave their decision on the following lines, we are of the firm assessment that the respondents would be acting illegally and arbitrarily while squeezing for demands raised vide the notifications which are upbraided in this writ petition and whatever other demands which they may examine for the period before the resolution plan being finalized.

The demand notifications are ex-facie illegal, arbitrary and essentially can’t be continued & sustained.

Arguments made by Ultratech

UltraTech Nathdwara Cement i.e. UNCL was of the view that the Resolution Plan and its arrangements are binding on all the partners of the Corporate Debtor. The Resolution Plan is given to instalment of INR 72.85 crores to the Central GST Department as against the all-out case filed with the Resolution Professional of Binani Cement Ltd. and extinguishment of the equalization claims. Contentions for the benefit of UNCL were driven by Sr. Direction Mr Ajay Vohra on the accompanying grounds:

  • The SLP filed by the Department testing the request for the National Company Law Appellate Tribunal favouring the Resolution Plan of UltraTech Cement Ltd. was excused by the Hon’ble Supreme Court;
  • Section 31 of the IBC, as changed, additionally accommodates the Resolution Plan to be binding on all partners including the Central Government, any State Government or any nearby power to whom an obligation in regard of the instalment of dues emerging under any law until further notice in power, for example, specialists to whom statutory dues are owed;
  • A Resolution Plan affirmed by the Committee of Creditors (“COC”) and the Adjudicating Authority/NCLT under the IBC, is binding on all partners of the Corporate Debtor;
  • The resolution plan is conclusive and binding on all parties involved whether they had been heard by the resolution proficient or the COC, has been let go by Hon’ble The Supreme Court on account of Committee of Creditors of Essar Steel India Ltd. Through Authorized Signatory Vs. Satish Kumar Gupta and Ors. detailed in 2019(16) SCALE 319.
  • The Hon’ble Finance Minister additionally explained the administrative purpose behind the correction to Section 31 of the IBC;

Conclusion

The judges after parting the final judgement were of the view that the case has been frivolous and has just wasted the time of the court in frivolities.

“we would like to express our serious reservation on the approach of the concerned Officers of the GST in persisting with the demands raised from the petitioner in gross ignorance of the pertinent statement made by Hon’ble the Finance Minister before the Parliament (referred to supra) and the amendment brought around in the IBC. We are of the firm view that the authorities should have adopted a pragmatic approach and immediately withdrawn the demands rather than indulging in a frivolous litigation, thereby unnecessarily adding to the overflowing dockets of cases in the courts.”

Thus, the plea was allowed.


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