Crown debts do not hold a prior position even over secured creditors under the Insolvency and Bankruptcy Code, since Section 238 of IBC provides for the overriding effect of IBC over other laws, the Karnataka High Court held.
Thus, if there is the filing of application done by the Central or State department to recover debts or participate in the resolution process under the Insolvency and Bankruptcy Code, 2016 then the claim is deemed to be erroneous in nature, the Court held.
Factual Background
The judgment was pronounced by Bench of Justices BV Nagarathna and Hanchate Sanjeev Kumar pursuant to an appeal filed by the Central Government against a judgment of a single- judge. The single –judge ruled that the respondent, Ruchi Soya Industries would be liable to pay import duty only at 7.5 percent based on a 2012 notification and not 12.5 percent based on a 2015 notification.
The respondent was facing insolvent proceedings under the provisions of the IBC and on December 8, 2017, the National Company Law Tribunal entertained the petition filed before it. Thereafter, public notice with the subject “invitation of claims” from all the creditors of the
respondent was released by the Interim Resolution on December 21, 2017. No claim was filed by the appellant department in the said proceedings.
A resolution Plan was submitted by the consortium of Patanjali Ayurved Limited, Divya Yog Mandir Trust, and Patanjali Gramdhyog Nyas with the resolution professional. The resolution plan was approved by the Committee of creditors of the respondent by virtue of Section 30 (4) of the IBC and orders were passed by the adjudicating authority in terms of Section 31 of IBC.
Case of the Appellant
The appellant sought to challenge this as it wanted to recover its import duty from the corporate debtor. Thus it moved to the High Court claiming it to be an operational debtor.
Case of the Respondent
The respondent company contended that the dues claimed by the department arose in the year 2015, which was before the resolution plan. The respondent claimed that the said dues cannot be recovered until unless they are made part of the Resolution Plan.
Emphasis was laid on a Supreme Court ruling in the case of Ghanshyam Mishra and Sons Private Ltd v. Edelweiss Asset Reconstruction Company, wherein it was held that once a resolution plan is approved by the Adjudicating Authority under Section 31(1) of the Insolvency and Bankruptcy Code, 2016, all claims which are not included or made a post to resolution plan stand rejected and no person can claim or continue to claim, which is not part of the resolution plan.
Such a resolution plan, the top court had ruled will be binding on all the creditors, including the Central Government, any State Government or local authority, guarantors of stakeholders.
Observation of the Court
The Court conceded to the above-stated submissions observing that the present case is the same as that of the Supreme Court and hence the same ruling shall apply. Crown debts do not hold a position under the IBC. Therefore, claims not a part of the resolution plan, shall stand is dismissed.
The Court also refuted the argument on a merit basis pertaining to the levy of extra duty based on 2015 notification.
Case Details
Before: Karnataka High Court
Case Title: Ramappa Ramwesh v. State of Karnataka
Coram: Hon’ble Mr. Justice BN Nagarthna and Justice Hanchate Snajeev Kumar
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