ONE PAGE 35 – Single order given by NCLAT, Delhi Bench on 20.03.2019 in M/s Synergies Dooray Automotive Ltd (NCLT, Hyd-AT# 205/2017) & 4 other appeals.
Are Statutory dues viz ITax, VAT etc Operational Debts under IBC?
1. Background: 5 appeals heard separately, but the question being common disposed by common judgment. Appellate is ITax Dept & its grievance is that NCLT granted huge IT benefits to CD without impleading it as respondent to proceedings. According to Appellant the IT or VAT are not required for operation of CD & therefore they do not come within the meaning of operational debt.
2. Question of law Vs NCLAT evaluation:
|SNo||Question of law||NCLAT evaluation|
|1||Whether income tax, VAT and other statutory dues such as municipal tax, excise duty etc come within the meaning of operational debt or not?||Op Debt in normal course means a debt arising during the operation of CD. Goods and services including employment are required to keep the CD operational as a going concern. If the CD is operational and remains a going concern, only in such case, the statutory liability, such as payment of ITax, VAT etc will arise. As the ITax, VAT & other statutory dues arising out of the existing law, arise when the CD is operational, we hold such statutory dues has direct nexus with operation of CD. For the said reason also, we hold that all statutory dues including ITax, VAT etc come within the meaning of Operational Debt.|
|2||Whether the Central Govt, State Govt or other legal authority having statutory claim come within the meaning of OCs?||For reasons above, NCLAT held that ITax Dept by Central Govt, Sales Tax Dept by State Govt and local authority who are entitled for dues arising out of the existing law are OCs u/s 5(20) under IBC.|
1. Case Laws:
a. LIC vs D. J. Bahadur & Ors. (1981) 1 SCC 315: Word ‘or’ may be interpreted as ‘and’ in certain extraordinary circumstances.
b. Municipal Corp of Delhi v Tek Chand Bhatia (1980) 1 SCC 158: word ‘or’ is normally disjunctive & ‘and’ is normally conjunctive, but at times they are read as vice versa.
c. Swiss Ribbons Pvt. Ltd (SC): Financial debt u/s 5(8) is an inclusive definition, whereas operational debt would include a claim in respect of the provision of goods or services, including employment, or a debt in respect of payment of goods or services, including employment, or a debt in respect of payment of dues arising under any law and payable to the Government or any local authority.
2. NCLAT Evaluation & Judgment: In view of the above findings and the stand taken by the ‘Resolution Applicant’, no interference is called for against the NCLT order. Statutory dues have been treated as ‘Operational Debt’ and equated them with similarly situated & NCLAT found no reason to interfere with NCLT orders. All the appeals were disposed with aforesaid observations & no costs.
PS: In this judgment NCLAT has finely elucidated on interpretation of the words ‘or’ & ‘and” in case of ambiguity in law.