Govt Can't Continue Proceedings For Statutory Dues Omitted From Approved Resolution Plan: CESTAT Chennai

The Chennai Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) on 7 September held that statutory dues owed to the Central Government, State Government or local authority, which are not included in a resolution plan approved by the National Company Law Tribunal (NCLT), stand extinguished and proceedings concerning such dues cannot be continued.

A Division Bench comprising Judicial Member Ajayan T.V. and Technical Member Vasa Seshagiri Rao was dealing with a customs appeal filed by Reliance Communications Infrastructure Limited against an order passed by the Commissioner of Customs (Appeals), Chennai. It held:

“Once the Resolution Plan is approved by the Adjudicating Authority under Section 31 (1) of Insolvency and Bankruptcy Code 2016 (IBC), then 'no person will be entitled to initiate or continue any proceedings in respect to a claim which is not part of the resolution plan'.”

The appeal had been adjourned on several occasions after the Department informed the Tribunal that Corporate Insolvency Resolution Process (CIRP) proceedings had been initiated against Reliance Communications Infrastructure Limited and that the NCLT had subsequently approved its resolution plan.

The Department placed before the Tribunal a copy of the NCLT order approving the resolution plan submitted by Reliance Projects & Property Management Services Limited, the successful resolution applicant, for resolution of Reliance Communications Infrastructure Limited.

The NCLT had directed that the approved resolution plan would be binding on the corporate debtor, its employees, members, creditors and other stakeholders, including the Central Government, State Government and local authorities.

The Tribunal noted that the Supreme Court, in Ghanashyam Mishra and Sons Pvt. Ltd. v. Edelweiss Asset Reconstruction Company Ltd., had settled the legal position that governmental authorities are bound by an approved resolution plan and cannot continue proceedings in respect of claims that are not part of the plan.

Applying this principle, the Bench noted that neither side had informed it whether the statutory dues forming the subject matter of the appeal were included in the approved resolution plan. It held, however, that this did not permit continuation of the appeal, as statutory dues not included in the approved resolution plan would stand extinguished. It further observed:

“All the dues including the statutory dues owed to the Central Government, any State Government or any local authority, if not part of the resolution plan, shall stand extinguished and no proceedings in respect of such dues for the period prior to the date on which the Adjudicating Authority grants their approval under Section 31 could be continued.”

Accordingly, the CESTAT held that the pending customs appeal could not be continued and disposed of the appeal in those terms.

Counsel for the Respondent: Anoop Singh, Authorised Representative