Allowed

M/S. Binani Cement Ltd. Now M/S Ultratech Nathdwara Cement Ltd. v. State of Rajasthan

Rajasthan HC24 Mar 2022CW/11352/2012

Case brief

AI extract

What is this about?

This judgment considers writ petitions challenging tax demands raised against a corporate debtor during the insolvency process. Relying on the Insolvency and Bankruptcy Code, the court held that operational creditors need not receive identical recovery percentages as financial creditors. The court quashed the tax department's demand notices issued during the CIRP.

What did the court decide?

Impugned demand notices, letters, and orders issued by respondents' tax department were quashed and set aside with directions for refund of amounts deposited.

M/S. Binani Cement Ltd. Now M/S Ultratech… — Insolvency and Bankruptcy | Rajasthan HC (2022)

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HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH AT JAIPUR

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D.B. Civil Writ Petition No. 11347/2012

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M/s Binani Cement Ltd. Now M/s Ultratech Nathdwara Cement Ltd., a company Incorporated under the provisions of the Companies Act, 1956 having its registered office at Block Dl 4th Floor, 22 Camac Street, Kolkata-700016, West Bengal and Corporate Office at B-Wing, Ahura Centre, 2" Floor, Mahakali Caves Road, Andheri (E), Mumbai-400093, Maharastra through its Authorised Signatory of Dr. Manohar Paliwal, aged 52 Tehsil Pindwara, District

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kw* %.. w".,,
+4& .- .b-L--petitioner
%# ."",A
.. V Versus 43
4% r~~ ,,+
1. State of Rajasthan through Secretary vt'o the
Government, Finan ment (Tax Division) State
nd Stamps, Jaipur,
----Respondents

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M/s Binani Cement Nathdwara Cement Ltd., a company I e provisions of the Companies Act, 195 16, West Bengal and

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its Authorised Signatory Hemant Paliwal son of Dr. Manohar Paliwal, aged 52 years, R/o Village Adityanagar, Tehsil Pindwara, District Sirohi-307031 (Raj.)

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Versus

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State of Rajasthan through Secretary to the Government, Finance Department (Tax Division) State Secretariat, Jaipur.

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The Inspector General, Registration And Stamps, Jaipur, Rajasthan.

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Sub-Registrar, Pindwara, District Sirohi.

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----Respondents

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D.B. Civil Writ Petition No. 11349/2012

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M/s Binani Cement Ltd. Now M/s Ultratech Nathdwara Cement Ltd., a company Incorporated under the provisions of the Companies Act, 1956 having its registered office at Block D, 4th Floor, 22 Camac Street, Kolkata-700016, West Bengal and Corporate Office at 8-Wing, Ahura Centre, 2"d Floor, Mahakali aharastra through on of Dr. Manohar

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retary to the x Division) State

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nd Stamps, laipur, 3.

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----Respondents % " at. D.B. Civil writ &tlt~l

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M/s Binani Cement L Nathdwara Cement Ltd., a company I provisions of the Companies Act, 195 office at Block D, 4th Floor, 22 Camac Stre 6, West Bengal and Corporate Office at B a rq'je, 2nd Floor, Mahakali Caves Road, Andheri (E), Mumbai-400093, Maharastra through its Authorised Signatory Hemant Paliwal son of Dr. .Manohar Paliwal, aged 52 years, R/o Village Adityanagar, Tehsil Pindwara, District Sirohi-307031 (Raj.)

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Versus

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State of Rajasthan through Secretary to the Government, Finance Department (Tax Division) State Secretariat, Jaipur.

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The Inspector General, Registration And Stamps, Jaipur,

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Sub-Registrar, Pindwara, District Sirohi.

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Rajasthan.

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D.B. Civil Writ Petition No. 11352/2012

¶24

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.<.A!
F@-*
----+etitioner

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ecretary to the x Division) State And Stamps, Jaipur,

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----Respondents

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M/s Binani Cement Nathdwara Cement Ltd., a company I provisions of the Companies Act, 1956 h d office at Block D, 4th Floor, 22 Camac St , West Bengal and 2nd Floor, Mahakali Caves Road, Andheri (E), Mumbai-400093, Maharastra through its Authorised Signatory Hemant Paliwal son of Dr. Manohar Paliwal, aged 52 years, R/o Village Adityanagar, Tehsil Pindwara, District Sirohi-307031 (Raj.)

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Versus

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State of Rajasthan through Secretary to the Government, Finance Department (Tax Division) State Secretariat, Jaipur.

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The Inspector General, Registration And Stamps, 3aipk Rajasthan.

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Sub-Registrar, Pindwara, District Sirohi.

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----Respondents

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D.B. Civil Writ Petition No. 967412013

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M/s Binani Cement Ltd. Now MIS Ultratech Nathdwara Cement Ltd., a company Incorporated under the provisions of the Companies Act, 1956 having its registered office at Block D, 4th Floor, Mahakali through

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, ---Petitioner

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L@l
!'"# ecretary to the
t (Tax Division)
ration And Stamps,
;tikt Sirohi.
For Respondent(s) .: #q~~~t.ij~h4,~AG with
6 P JaS.qarai an .,~ngh Shekhawat

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HON'BLE MR. JUSTICE PRAKASH GUPTA HON'BLE MR. JUSTICE BLRENDRA KUMAR

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Order

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24/03/2022

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It is submitted by learned counsel for the parties that the issue involved in these writ petitions is squarely covered by the judgment dated 7.4.2020 passed by the Coordinate Bench of

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(5 of 23)

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[CW-11347/2012]

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this Court at Principal Seat, Jodhpur in D.B. Civil Writ Petition No.9480/2019 titled Ultra Tech Nathdwara Cement Ltd. v. Union of India and Ors. It has been prayed that this bunch of writ petitions may also be decided accordingly.

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Heard. Considered.

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In the case of Ultra Tech Nathdwara Cement Ltd. (supra), the Coordinate Bench of this Court noted that the reolv . . . . . , given by Hon'ble conveys that the revival secure this its interest finally in the hands of the resolution professional and the COC as the case ma cheme of the Act is given to secure the i editors. The Division Bench of this Court in ch Nathdwara Cement Ltd. (supra) considere ed by the Hon'ble Apex Court: in the case of C editors of Essar Steel re India Ltd. Through ignatory Vs. Satish Kumar

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India Ltd. Through

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Gupta & Ors. rep extracts from the jud the case of Essar teel~~~~nd"a~~td=.(is$p a) are reproduced as *&hq dud under:

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'20. The role of the resolution professional in the revival of the corporate debtor is stated in detail in several Sections of the Code read with the 2016 Regulations.

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The ball starts rolling with the Adjudicating Authority, after admitting an application under either Sections 7, 9 or 10, ordering that a public announcement of the initiation of the CIRP

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together with calling for the submission of claims Under Section 15 shall be made- see Section 13(l)(b) of the Code. For this purpose, the Adjudicating Authority appoints an interim resolution professional in the manner laid down in Section 16- see Section 13(l)(c) of the Code. In the public announcement of the CIRP, Under Section 15(1), information as to the last date for submission of claims, as may be specified, is to resolution the

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close is also to see Section 15(l)(c), tion 17 of the the interim d of Directors of uspended by law. s of the interim f Creditors-see e Code. Under Section 20 o terim resolution endeavour to protect and preserve the value of the property of the corporate debtor and manage the operations of the corporate debtor as a going concern. 22. At the first meeting of the Committee of Creditors, which shall be held within 7 days of its constitution, the Committee, by majority vote of not less than 66% of the voting share of financial creditors, must immediately resolve to appoint the interim resolution professional as a resolution professional, or to replace the interim

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resolution professional by another resolution professional-see Section 22(1) and (2) of the Code. Under Section 23(1), the resolution professional shall conduct the entire CIRP and manage the operations of the corporate debtor during the same. Importantly, all meetings of the Committee of Creditors are to be conducted by the resolution professional, who shall give notice of such meetings to the members of the provided the amoun>-@J their /$ dues is not less than lo%"*-opthe dM.3 owed. Like the duties of the intefi~m resolution profess er Section 18 of the he resolution tect assets of e continued orate debtor-see this purpose, he is to maintain of claims; convene e Committee of n memorandum Code; invite and present all resolution ings of the tion 25(2)(e) to (i) of the Code. Under Section 29(1) of the Code, the resolution professional shall prepare an information memorandum containing all relevant information, as may be specified, so that a resolution plan may then be formulated by a prospective resolution applicant. Under Section 30 of the Code, the resolution Applicant must then submit a resolution plan to the resolution professional, prepared on the basis of the information memorandum. After this, the

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resolution professional must present to the Committee of Creditors, for its approval, such resolution plans which conform to the conditions referred to in Section 30(2) of the Code-see Section 30(3) of the Code. If the resolution plan is approved by the requisite majority of the Committee of Creditors, it is then the duty of the resolution professional to submit the resolution plan as approved by the Committee of Creditors to the Section 30(6)

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by operational ;I financial creditors, ns 7 to 12. , the resolution laim as on the @ate, e, and thereupon C P1 maintain a lis ining the names ts claimed by him, and the pect of such aforesaid listsee Regulati 25. After receipt of the resolution plans in accordance with the Code and the Regulations, the resolution professional shall then provide the fair value and liquidation value to every member of the Committee of Creditors-see Regulation 35(2). Regulation 36 is important as it forms the basis for the submission of a resolution plan. The information memorandum, spoken of by this regulation, must contain the following:

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(a) assets and liabilities with such description, as on the insolvency commencement date, as are generally necessary for ascertaining their values. Explanation: "Description" includes the details such as date of acquisition, cost of acquisition, remaining useful life, identification number, depreciation charged, book value, and any other relevant details.

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(b) the latest annual financial statements;

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corporate

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(d) a list of cred ~taining taining the names of ed by them, the

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from or to the \allhave .have been given in F. relation to th por ate debtor by hich of the e members or per cent stake in cent stake in the corpora ith the size of stake;

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(h) details of all material litigation and an ongoing investigation or proceeding initiated by Government and statutory authorities;

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(i) the number of workers and employees and liabilities of the corporate debtor towards them; (j) ***

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(k) ***

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(I) other information, which the resolution professional deems relevant to the committee. 27. Another very important function of the resolution professional is to collect, collate and finally admit claims of all creditors, which must then be examined for payment, in full or in part or not at all, by the resolution Applicant and be finally negotiated and decided by the Committee of Creditors.

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-. a -7--%& 30. Acc~rdi&gIy~~,u$o$@~~;n deals with 43w the da"n't$atory contents of a".'esgl.nton plan, "* 5 alt12it clear that such plan mud "b cg tain a '{d' 'Tp~ovision that the amount due to oper ^% r -s. :$al 4Qmmg r 1 ' + creditors shall be given priority in payment oyer. gulation 38(1). Such as to how to stakeholders operational egulation 38 the term of the it& I of the business of ch term, and its onstrate that it .the resolution implement plement the important, is set

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38. Mandatory contents of the resolution plan

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(1) The amount due to the operational creditors under a resolution plan shall be given priority in payment over financial creditors.

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(1A) A resolution plan shall include a statement as to how it has dealt with the interests of all stakeholders, including financial creditors and operational creditors, of the corporate debtor. (2) A resolution plan shall provide:

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(a) the term of the plan and its implementation schedule;

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(b) the management and control of the business of the corporate debtor during its term; and (c) adequate means for supervising its implementation.

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(3) A resolution plan shall demonstrate that-

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(a) it addresses the cause of default;

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(a) it is feasible and viable;

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implement the resolut'o~~plan. gplu

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Role of the conTmitte% l

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corDorate rest

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:e of a particular of the Code and Committee in its ) of the Code mandates that the Committee of Creditors shall comprise all financial creditors of the corporate debtor. "Financial creditors" are defined in Section 5(7) of the Code as meaning persons to whom a financial debt is owed and includes a person to whom such debt has been legally assigned or transferred. "Financial debt" is then defined in Section 5(8) of the Code as meaning a debt along with interest, if any, which is disbursed against the consideration for the time

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value of money. "Secured creditor" is separately defined in Section 3(30) of the Code as meaning a creditor in favour of whom a security interest is created and "security interest" is defined by Section 3(31) as follows:

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Definitions.-In this Code, unless the context otherwise requires.- xxx xxx xxx

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(31) "security interest" means right, title or interest or a claim to property, created in favour of, or pro<v@e a 'io$ $J$Seemred creditor by a ?& _"J k3-a_

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pelP6n?ifance of an obligation ahoncjudes 5"

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yortgage, charge, - hypothecation, assi$@ent PI

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~qand encumbrance or any other agreemenvor arrangement securing payment or performance of any obligati.Bng -p-, tm4 a f ,any? .sad I

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not include

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udgment passed of Essar Steel India I

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(supra) are reproduce

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decision of the sibility and viability" of takes into including the manner of distribution of funds among the various classes of creditors. As an example, take the case of a resolution plan which does not provide for payment of electricity dues. It is certainly open to the Committee of Creditors to suggest a modification to the prospective resolution Applicant to the effect that such dues ought to be paid in full, so that the carrying on of the business of the corporate

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debtor does not become impossible for want of a most basic and essential element for the carrying on of such business, namely, electricity. This may, in turn, be accepted by the resolution Applicant with a consequent modification as to distribution of funds, payment being provided to a certain type of operational creditor, namely, the electricity distribution company, out of upfront payment offered by the proposed resolution@p~~~w@$f~~ also result in a * 6 .. S~Q A,?& consequetreduction of amod&s~.!- ayable to b*,3! ek\ otherHlnancial and operational creditosW.hat is . .b";.. 4$brtant is that it is the commercial w~sdomof C this majority of creditors which is to determ*, YF' '""fi, through negotia the prospective and in what process is to

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required to itors under a Under Section the amount n the event of .debtor Under y Committee nt in 2018 was . or issues that arise in the working of the Code and to recommend changes, if any, required to be made to the Code. The Insolvency Committee Report, 2018 (hereinafter referred to as "The Committee Report, 2018"), inter alia, deliberated upon the objections to Section 30(2)(b) of the Code, inasmuch as it provided for a minimum payment of a "liquidation value" to the

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operational creditors and nothing more, and concluded as follows:

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"18, VALUE GUARANTEED TO OPERATIONAL CREDITORS UNDER A RESOLUTION PLAN

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18.1 Section 30(2)(b) of the Code requires the RP to ensure that every resolution plan provides for payment of at least the liquidation value to all operational f creditors. egui$$ow3$ &)(I$) of the CIRP .$;$*** * Regulatrons "iimma &. provides that Ilq datipn value 2 Lp rq&t.-*be paid to operational cred qp+,prior 3% (2 Tin-time to all financial creditors andawlthin *"p 8 %hirty days of approval of resolution plan+b$ the NCLT. The BLRC&F a- .. ~ort states that the e has been since they CoC which the corporate

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blic comments stated that, in lue which is al creditors II under the editors Under Section 53: ~a%cularly, - . . in the case of unsecured operational creditors, it was argued that they will have no incentive to continue supplying goods or services to the corporate debtor for it to remain a 'going concern' given that their chances of recovery are abysmally low.

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18.3 The Committee deliberated on the status of operational creditors and their role in the CIRP. It considered the viability of using 'fair value' as the floor to

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determine the value to be given to operational creditors. Fair value is defined under Regulation 2(l)(hb) of the CIRP Regulations to mean "the estimated realizable value of the assets of the corporate debtor, if they were to be exchanged on the insolvency commencement date between a willing buyer and a willing seller in an arm's length * FT* transaction^ a~%q proper-~marketing and * g*j-k.t A. xA **3?&*p** where$ %he parties -hap\ acted -7 -.-rf-i. kno+wledgeably, prudently and {~ithout 3 f."") ompulsion." However, it was felt that Ytd2 assessment and payment of the fair value

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It. The Committee of using as the floor al creditors med suitable. ommittee that provided as a floor and i y operational s above this ted the need nal creditors all and Medium Enterprise '%%$his reaard, the Committee observed that in practice most of the ouerational creditors that are critical to the business of the corporate debtor are paid out as Dart of the resolution plan as thev have the power to choke the corporate debtor bv cutting off supplies. Illustratively, in the case of SynergiesDooray Automative Ltd. (Company Appeal No. 123/2017, NCLT Hyderabad, Date of decision-02 August, 2017), the original

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resolution plan provided for payment to operational creditors above the liquidation value but contemplated that it would be made in a staggered manner after payment to financial creditors, easing the burden of the 30-day mandate provided under Regulation 38 of the CIRP Regulations. However, the same was modified by the NCLT and operational creditors were p rr?, d prior in3ti e, due to the * + ~-4u&4!$ t and naturjme of the crebitk. Similarly, the 9" Fresolution plan in the case of '3Aaudavan Pvt. Ltd. (Company 37/2017, NCLT Pcincipal Bench, Date of &kif#?*

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t minimum must utorily, but by ution plans hieved by atory bodies Indian Banks' Associatio Finally, the Committee agreed that presently, most of the resolution plans are in the process of submission and there is no empirical evidence to further the argument that operational creditors do not receive a fair share in the resolution process under the current scheme of the Code. Hence, the Committee decided to continue with the present arrangement

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without making any amendments to the Code.

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Ultimately, the Committee decided against any amendment to be made to the existing scheme of the Code, thereby retaining the prescription as to the minimum value that was to be paid to the operational creditors under a resolution plan.

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By reading paragraph 77 de hors the earlier

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so, the observati

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agraph 77 cannot be

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uster. On the kes it clear that t of the debts of financial and ditors, operational creditors havi inimum payment, The amended at financial and and unsecured creditors, must be paid the same amounts, percentage wise, under the resolution plan before it can pass muster. Fair and equitable dealing of operational creditors' rights under the said Regulation involves the resolution plan stating as to how it has dealt with the interests of operational creditors, which is not the same thing as saying that they must be paid the same amount of their debt proportionately. Also, the fact that the operational creditors are given

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priority in payment over all financial creditors does not lead to the conclusion that such payment must necessarily be the same recovery percentage as financial creditors. So long as the provisions of the Code and the Regulations have been met, it is the commercial wisdom of the requisite majority of the Committee of Creditors which is to negotiate and accept a resolution plan, which may involve differential payment to

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Indeed, bv vestina the Committee of

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entiated when imortantlv, operational creditors are separatelv viewed from these secured and unsecured financial creditors in S. No. 5 of paraqraph 7 of statutorv Form H. Thus. it can be seen that the Code and the Reaulations, read as a whole, toaether with the observations of expert bodies and this Court's iudament, all lead to the conclusion that the eaualitv princile cannot be stretched to treatina uneauals eauallv, as

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that will destrov the verv objective of the Code-to resolve stressed assets. Eauitable treatment is to be accorded to each creditor de~endinq uDon the class to which it belonas: secured or unsecured, financial or ,: o~erational.

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This power in Section 392 is conspicuous by its absence when it comes to the Adjudicating Authority under the Code, whose jurisdiction is It is the

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fit. It is this erence between the er the Code her a resolution Code. When this clear that there is to approve a t it is unfair or looked into and note that even Under Sections 391 and 392 of the Companies Act, 1956, ultimately it is the commercial wisdom of the parties to the scheme, reflected in the 75% majority vote, which then binds all shareholders and creditors. Even Under Sections 391 and 392, the High Court cannot act as a court of appeal and sit in judgment over such commercial wisdom.

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66. Section 31(1] of the Code makes it

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clear that once a resolution ~lan is

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apDr0ved bv the Committee of Creditors it shall be bindina on all stakeholders, includina auarantors. This is for the reason, that this provision ensures that the successful resolution A~~licant starts runnina the business of the corporate debtor on a fresh slate as it were.

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For the same reason, the impuaned NCLAT iudament in holdina that claims that Far

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mav exist-6.aoa~dfrom Tth"0se decided on c.yhL-"' - -+--wp

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merits 6v t e resolution ~rofessional and -7 L..@a.

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bvbthe Adiudicatina Authoritv/Appellate %p f 2.

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kT+ibunal can now be decided bvdan

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C a&" ,-a",

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Pappropriate forum in terms of sectioh pi 60(6) of the Code,,,also militates aaainst *5T>4&a'f&

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the rationale""4ofh~i2cti'on 3-lkof the Code. A Tt$&& $a "-' "S" 'J[&p-

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suddenly be. acedtth i -4dW Ondec~ded" claims after the resofution.rplan ssmitted &gtgmmp bv him -* &'

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has been ac~""%edm%sgould amount to rr [bbm sK

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a hvdra head - opplng p which would r 4 $4 141 p if

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throw into unceMa~ntv amounts avable bv #+ = dir3. _Y_ .r++y,f #P t&\

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a rospectlve & resolu onkp~licant who $+\rvy ': $i?y*9%&

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successfullv4 taI&&e& t'h%~basiness of the resolution ADDlicant knows exactlv what has to be Daid in order that it mav then take over and run the business of the corporate debtor. This the successful resolution plicant does on a fresh slate, as has been pointed out bv us hereinabove. For these reasons, the NCLAT iudament must also be set aside on this counf."

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[Emphasis supplied]

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On that basis, the Coordinate Bench of this Court in thet case of Ultra Tech Nathdwara Cement Ltd. (supra) made the following observations:

¶130

"Considered in light of the ratio of the above judgment and the stance of Hon'ble the Finance Minister before the upper house of the Parliament, it is clear that the financial creditors have to be given a precedence in the ratio of 2r -# payments_,w*he~I<$ .~e~~~;~plan is being finalized.sIt~ flc %+ %- IS the financial cre>ltorsk who are Ln to vote in the COC whqeas the "'4:; creditors viz. Commercial Taxes "r"3 of the Central Government or,\bhe ase may be, have no the statute is r the same and n slate. For that dues and liabilities inalization of the ional with the the case at hand, the situation has proceeded much further. The operational creditors i.e. the Commercial Taxes Department of Govt. of Rajasthan as well as the respondent Commissioner of Goods and Service Tax assailed the resolution plan by filing appeals before Hon'ble the Supreme Court with a specific plea that their dues have not been accounted for by the COC in the resolution plan. The objection so raised stands repelled with the rejection of the

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appeals by Hon'ble The Supreme Court. In addition thereto, it may be mentioned here that from the two possible situations; one being liquidation and the other being revival, the respondents will gain significantly in the later because as per the assessed liquidity value, their dues have been assessed as nil, whereas as per the resolution plan with revival of the industry at the instance of the resolution applicant (the odd.

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Department has een deposited by the

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ing in a totally hile pressing for demands rai otices which are and any other

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Accordingly, the impugned demand notices and orders viz. notice dated 11.2.2019 (Annex.lO), letter dated 7.9.2018 (Annex.ll), order dated 20.3.2019 (Annex.l2), notice dated 6.3.2019 (Annex.13), notice dated 8.3.2019 (Anr1ex.14)~ notice dated 29.3.2019 (Annex.l5), notice dated 29.3.2019 (Annex.l6), notice dated 10.4.2019 (Annex.18), order dated 9.4.2019 (Annex.19), two notices dated 11.6.2019

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(Annex.20) and any further demands pending as on the date of finalization of the resolution plan issuedlraised by the respondents Central Goods and Service Tax Department, Govt. of India are quashed and struck down."

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In view of the above, impugned notices of demand dated 06.06.2012, 14.03.2012, 17130.03.2011, 17/31.03.2011,

¶137

' i thereto are het'eby quashed and set aside. Tp+- "5, Ir *$J "q"rhe amounts so deposited by the petit%aner Q in S. compliance of the interirpq&o@,ers .W 41 , A dated 09.08.2012 and

¶138

29.07.2013 be refun

¶139

7, 'we; applications and all IAi$a~fons, if any, also stand

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disposed of accordingly.

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connected file.

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(BIRENDRA KUMAR),~'

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(PRAKASH GUPTA),]