GHANASHYAM MISHRA AND SONS PRIVATE LIMITED vs EDELWEISS ASSET RECONSTRUCTION COMPANY LIMITED on 13 April, 2021

B.R. GAVAI, J.

Natarajan

1.Leave granted in Special Leave Petition (Civil) Nos. 11232 of 2020 and 7147-7150 of 2020.

2.The short but important questions, that arise for consideration in this batch of matters, are as under: (i) As to whether any creditor including the Central Government, State Government or any local authority is bound by the Resolution Plan once it is approved by an adjudicating authority under sub-section (1) of Section 31 of the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as ‘I&B Code’)? (ii) As to whether the amendment to Section 31 by Section 7 of Act 26 of 2019 is clarificatory/declaratory or substantive in nature? (iii) As to whether after approval of resolution plan by the Adjudicating Authority a creditor including the Central Government, State Government or any local authority is entitled to initiate any proceedings for recovery of any of the dues from the Corporate Debtor, which are not a part of the Resolution Plan approved by the adjudicating authority?

3.We will first refer to the facts in each of these matters. CIVIL APPEAL NO.8129 OF 2019 [ GHANASHYAM MISHRA AND SONS PRIVATE LIMITED Vs. EDELWEISS ASSET RECONSTRUCTION COMPANY LIMITED & OTHERS]

4.Orissa Manganese & Minerals Limited (hereinafter referred to as “Corporate Debtor” or “OMML”) was engaged in the business of mining iron ore, graphite, manganese ore and agglomerating iron fines into pellets through its facilities in Orissa and Jharkhand. The Corporate Insolvency Resolution Process (hereinafter referred to as “CIRP”) was initiated in respect of the Corporate Debtor by an application under Section 7 of I&B Code filed by the State Bank of India (hereinafter referred to as “SBI”) before the National Company Law Tribunal, Kolkata Bench, Kolkata (hereinafter referred to as “NCLT”).

5.Vide order dated 3.8.2017, Company Petition (I.B.) No. 371/KB/2017 filed by SBI was admitted. Shri Sumit Binani was appointed as Interim Resolution Professional (hereinafter referred to as “IRP”). Upon admission of the said Company Petition, CIRP was initiated with effect from 3.8.2017. The appointment of IRP was confirmed by the Committee of Creditors (hereinafter referred to as “CoC”) in their meeting held on 4.9.2017. The Resolution Professional (hereinafter referred to as “RP”) continued with the resolution process by inviting Expression of Interest (hereinafter referred to as “EOI”) and applications for resolution plan in accordance with the provisions of the I&B Code and the Regulations framed thereunder. The initial period of CIRP of 180 days expired on 29.1.2018. At the request of CoC, RP moved an application for extension of CIRP period, which came to be extended by 90 days i.e. till 29.4.2018.

6.In response to the invitation, three Resolution Plans were received by RP each from, Edelweiss Asset Reconstruction Company Limited (hereinafter referred to as “EARC”), respondent No.1 herein, Orissa Mining Private Limited (hereinafter referred to as “OMPL”) and Ghanashyam Mishra & Sons Private Limited (hereinafter referred to as “GMSPL”), the appellant herein, respectively. In the 8th meeting of the CoC held on 14.3.2018, EARC was declared as H1 Bidder. However, EARC failed to satisfy CoC in the negotiations and as such, the resolution plan submitted by EARC came to be rejected in the 9th meeting of CoC held on 31.3.2018.

7.CoC thereafter proceeded for negotiations with the H2 Bidder i.e. GMSPL. However, the resolution plan of GMSPL was also found to be unacceptable to CoC and therefore, in its 10th meeting held on 3.4.2018, it decided to annul the existing process and initiate a fresh process for invitation of Resolution Plan only from the applicants, which had earlier submitted their EOI. Accordingly, a communication was sent to the applicants, which had submitted their EOI. In response to the said invitation, three Resolution Plans were received each from GMSPL, EARC and Srei Infrastructure Finance Limited (hereinafter referred to as “SIFL”) respectively. These Resolution Plans were considered by CoC in its 11th meeting held on 13.4.2018. After evaluation of the Resolution Plans, CoC ranked GMSPL as the H1 bidder.

8.Further negotiations were held by CoC with GMSPL. After several rounds of negotiations, the Resolution Plan of GMSPL was considered by CoC for its approval. In its 12th meeting held on 21.4.2018, CoC unanimously took a decision to convene a meeting of CoC on 25.4.2018 at 6 PM, for voting on the Resolution Plan proposed by GMSPL. After being satisfied, that the Resolution Plan submitted by GMSPL meets all the requirements under sub-section (2) of Section 30 of the I&B Code, the same was placed before the Members of CoC for voting, and the Resolution Plan came to be approved by more than 89.23% of the voting share of financial creditors of the Corporate Debtor.

9.Accordingly, a Company Application being C.A (IB) No. 402/KB/2018 came to be filed by RP for approval of the Resolution Plan submitted by GMSPL. One application being C.A. (IB) No. 398/KB/2018 came to be filed by EARC respondent No.1 herein, challenging the approval of the Resolution Plan of GMSPL. One more application came to be filed by EARC being C.A. (IB) No. 470/KB/2018 challenging the decision of RP in not admitting its claim. The said application was filed, contending, that its claim stood on the strength of corporate guarantee provided by the Corporate Debtor against the take-out facility provided to Adhunik Power and Natural Resources Limited (hereinafter referred to as “APNRL”), being sister concern of the Corporate Debtor. It was contended, that in not admitting the claim on the strength of corporate guarantee, RP violated Regulations 13 and 14 of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 (hereinafter referred to as “the Regulations”). It was prayed in the application for a direction to the successful resolution applicant i.e. GMSPL, to undertake to pay the full amount due and payable under the said corporate guarantee and further to issue directions for protecting the rights of the lenders of APNRL as pledgee. One more Application being C.A. (IB) No.509/KB/2018 was filed by the District Mining Officer, Department of Mining and Geology, Jharkhand challenging non-admission of its claim to the tune of Rs.93,51,91,724/- and Rs.760.51 crore.

10.NCLT by an elaborate order dated 22.6.2018 approved the Resolution Plan of GMSPL, which was duly approved by CoC by voting share of more than 89.23%. Rest of the applications including the two filed by EARC, the respondent No.1 herein, came to be rejected.

11.Being aggrieved by the order passed by NCLT, EARC preferred Company Appeal being Company Appeal (AT) (Insolvency) Nos. 437/2018 and 444/2018 before the National Company Law Appellate Tribunal, New Delhi (hereinafter referred to as “NCLAT”). Company Appeal (AT) (Insolvency) No. 437/2018 was against the rejection of claims of EARC as Financial Creditor and thereby its non inclusion in CoC. Company Appeal (AT) (Insolvency) No. 444/2018 came to be filed with the grievance, that RP and CoC had erroneously held, that the plan of GMSPL was better than that of EARC. One more Company Appeal being Company Appeal (AT) (Insolvency) No. 500/2018 came to be filed by Sundargarh Mines & Transport Workers Union (hereinafter referred to as “SMTWU”) on behalf of the workmen of the Corporate Debtor. One another Company Appeal being Company Appeal (AT) (Insolvency) No.438/2018 came to be filed by one Deepak Singh, an employee of APNRL, claiming dues of his salary.

12.By the impugned judgment and order dated 23.4.2019, NCLAT while holding, that RP was justified in not accepting the claim of EARC and that NCLT had rightly rejected the application filed by EARC, however, observed that the rejection of the claim for the purpose of collating and making it part of the Resolution Plan will not affect the right of EARC to invoke the Bank Guarantee against the Corporate Debtor, in case the principal borrower failed to pay the debt amount, since the moratorium period had come to an end. NCLAT on comparison of the plans submitted by EARC and GMSPL further held, that the resolution plan submitted by GMSPL was a better one than the one submitted by other applicants and there was no illegality in accepting the resolution plan of GMSPL.

13.Insofar as the Company Appeal (AT) (Insolvency) No. 500/2018 is concerned, the grievance was, that though there were around 1,476 workmen, RP ignored their rightful wages, statutory dues and other benefits. NCLAT, in the said order, observed, that after the period of moratorium, it was open for the persons to move before a civil court or to move an application before the court of competent jurisdiction against the Corporate Debtor. NCLAT therefore observed, that the appellant therein may move before the civil court or a court of competent jurisdiction and may file an application before the Labour Court for appropriate reliefs in favour of the concerned workmen or against the Corporate Debtor, if they have actually worked and had not been taken care of in the Resolution Plan.

14.Insofar as Company Appeal (AT) (Insolvency) No. 438/2018 is concerned, it was the claim of Deepak Singh, appellant therein, that he had joined APNRL, the holding Company of the Corporate Debtor, as the President-Group Head HR from 2.6.2014 to 9.3.2015. It was his claim, that he had an amount of Rs.17,03,000/- recoverable from the said APNRL and as such, was an Operational Creditor. It was submitted, that though the claim of the said appellant was valid, it was illegally rejected by RP. NCLAT held, that insofar as the said appeal is concerned, no ground as is permissible under sub-section (3) of Section 61 of I&B Code is made out and as such, relief could not be granted in the appeal. However, it was observed, that the said order passed in the appeal would not come in the way of appellant to move the appropriate forum for appropriate relief.

15.GMSPL, thus, aggrieved by the observations made by NCLAT to the effect, that the claims of the parties, which are not included in the Resolution Plan could be agitated by them before the other forums, has preferred the present appeal. CIVIL APPEAL ARISING OUT OF SPECIAL LEAVE PETITION (CIVIL) NO.11232 OF 2020 [U LTRATECH NATHDWARA CEMENT LIMITED VS. STATE OF UTTAR PRADESH AND OTHERS

16.The appellant is a wholly owned subsidiary of UltraTech Cement Limited and is engaged in the business of manufacturing and marketing of cement and allied products.

17.On 19.12.2015, the Additional Commissioner, Commercial Tax, Ghaziabad passed an order in the appeal preferred by M/s Binani Cement Limited, thereby, allowing the appeal filed by Binani Cement and setting aside the order of imposition of fine of Rs.24,71,885/-. Vide another order dated 22.12.2015, passed in the appeal filed by Binani Cement, the order of imposition of fine of Rs.59,61,445/- also came to be set aside. Vide order dated 2.8.2017, the Deputy Commissioner, Commercial Tax, Division-10, Ghaziabad held, that Binani Cement was liable to pay Entry Tax of Rs.40,47,344/- for the Assessment Year 2003-2004. By another order dated 2.8.2017, the Deputy Commissioner, Commercial Tax, Division-10, Ghaziabad further held, that Binani Cement was liable to pay Entry Tax of Rs.43,06,715/- for the Assessment Year 2004-2005.

18.Since the said Binani Cement was unable to pay the debt to Bank of Baroda, the Bank of Baroda filed an application being C.A. (IB) No. 359/KB/2017 before NCLT, Kolkata Bench under Section 7 of I&B Code. Vide order dated 25.7.2017, NCLT admitted the petition for initiating the CIRP process. Vide the said order, NCLT also declared moratorium for the purposes referred to in Section 14 of I&B Code.

19.Vide communication dated 10.11.2017, the authorities were informed about the initiation of the CIRP. However, the authority by an endorsement made on the application of the appellant herein stated, that there was no stay granted by NCLT on tax assessment process. It was observed, that if there was any clear order passed by NCLT, the same should be produced or the Binani Cement should appear on the next date i.e. 27.11.2017 for hearing of tax assessment process.

20.On 28.7.2017, RP made a public announcement inviting claims from all the creditors of the Corporate Debtor, as is required under Section 15 of I&B Code. The last date for submission of claims was 8.8.2017. RP upon receipt of the claims maintained a list of creditors alongside the amount claimed by them and the security interest. RP also invited EOI. In response, various entities including the present appellant submitted their EOI as well as resolution plans. CoC in its meeting dated 28.5.2018, unanimously approved the Resolution Plan submitted by the present appellant. Pursuant to the approval by CoC, NCLAT granted approval to the Resolution Plan of appellant vide order dated 14.11.2018. The said order came to be challenged before this Court in Civil Appeal No. 10998/2018, which was dismissed by this Court vide order dated 19.11.2018.

21.On 13.12.2018, the name of the Corporate Debtor was changed to UltraTech Nathdwara Cement Limited from Binani Cement Limited and the management of the Corporate Debtor was taken over by Ultratech Cement Limited w.e.f. 20.11.2018. Thereafter, the appellant addressed various communications to the tax authorities, who are respondents herein informing them, that after the Resolution Plan was approved by NCLT, all proceedings instituted against the Corporate Debtor, arising and pending before the transfer date shall stand withdrawn. It was also informed, that all the liabilities towards operational creditors shall be deemed to have been settled by discharge and payment of the resolution amount by the Corporate Debtor. However, it was insisted by the tax authorities, that since there was no specific stay, proceedings could not be dropped. After various communications addressed by the appellant to the Joint Commissioner, Commercial Tax (Corporate Circle), Ghaziabad dated 26.4.2019, the following endorsements came to be made by the authority on 29.4.2019: “After consideration on application presented by you, it is found that, by Hon’ble NCLT/NCLAT after transfer, neither stay is imposed on tax assessment nor on creation of demand. So the created demand is payable by you. If you are not agree with it, preferring appeal before higher authority, present its copy to us. Disposal is done of application presented by you.”

22.The Commercial Tax Department of the State of Rajasthan filed Civil Appeal No. 5889/2019 challenging the Resolution Plan. However, the said appeal came to be dismissed vide order of this Court dated 26.7.2019. The appeals being Civil Appeal Nos. 630-634/2020 were also preferred by the Commissioner of Central Excise, Goods and Services Tax, Jodhpur challenging the Resolution Plan. The same also came to be dismissed by this Court vide order dated 24.1.2020.

23.The appellant therefore filed a Civil Miscellaneous Writ Petition No. 354/2020 before the High Court of Allahabad challenging the order passed by the Additional Commissioner Grade 2 (Appeal) dated 30.1.2020, to the effect, that the proceedings in the State of U.P. would remain unaffected irrespective of the approval of the Resolution Plan of the appellant by NCLT. The appellant also prayed for a declaration, that all the proceedings pending before different authorities stand abated in terms of the approval of the Resolution Plan by NCLT. A prayer was also made for refund of Rs.248.92 lakhs deposited by the appellant under protest and for return of the Bank Guarantee.

24.The Division Bench of the Allahabad High Court vide order dated 6.7.2020 observed, that the contention of the appellant with regard to the approval of the Resolution Plan by NCLT has been dealt with by the Assessing Authority as well as by the Appellate Authority and therefore, it was in the fitness of things that the appellant should avail of the alternative remedy of filing a second appeal available under the VAT Act. Being aggrieved by the same, the appellant has filed the present appeal. WRIT PETITION (CIVIL) NO. 1177 OF 2020 M/S MONNET ISPAT & ENERGY LIMITED AND ANOTHER VS. STATE OF ODISHA AND ANOTHER

25.The petitioner Company is a Corporate Debtor in respect of which CIRP proceedings commenced in July 2017 and ended in July 2018, when NCLT approved the Resolution Plan submitted by a Consortium of Aion Investment Private Limited and JSW Steel Limited (“Aion JSW” for short). Prior to approval by NCLT, CoC had granted approval to the said Resolution Plan by a voting majority of 98.97%. It is the contention of the petitioner, that in accordance with the provisions of I&B Code, RP had made a public announcement thereby, inviting claims from Creditors. Contending, that the demand notices issued by the respondents for recovery of Service Tax towards Royalty, District Mineral Foundation (“DMF” for short) and National Mineral Exploration Trust (“NMET” for short) against the iron ore purchased by the petitioner Company are contrary to the law laid down by this Court in the case of Committee of Creditors of Essar Steel India Limited Through Authorized Signatory v. Satish Kumar Gupta and Others1, the petitioner has directly approached this Court by filing a writ petition under Article 32 of the Constitution of India. CIVIL APPEALS ARISING OUT OF SPECIAL LEAVE PETITION (CIVIL) NOS.7147-7150 OF 2020 [ELECTROSTEEL STEELS LIMITED, BOKARO, JHARKHAND VS. STATE OF JHARKHAND AND OTHERS]

26.The appellant is a Corporate Debtor in respect of which the proceedings under Section 7 were initiated by the SBI. Vide order dated 21.7.2017 of NCLT, the application filed by SBI was admitted and Mr. Dhaivat Anjaria was appointed as Interim Resolution Professional (IRP). In its meeting dated 21.8.2017, CoC approved the appointment of IRP as RP. In response to the invitation for submission of resolution plans, four applicants had submitted their Resolution Plans. CoC had approved the Resolution Plan of Vedanta Limited by 100% voting share. NCLT vide order dated 17.4.2018 approved the Resolution Plan of Vedanta Limited. The appeal being Company Appeal (AT) (Insolvency) No. 175/2018 filed by one Renaissance Steel India Private Limited challenging the order of NCLT came to be dismissed by NCLAT vide order dated 10.8.2018. Challenging the notices issued by the respondent State Authorities and the order of SBI asking it to pay an amount of Rs.37,41,41,602/- on account of tax penalty due under the Jharkhand VAT Act for the period 2011-12 and 2012 13, the appellant approached the High Court of Jharkhand. The appellant had also challenged the letter dated 22.11.2019 issued by State Tax Officer, Bokaro to deposit the amount of Rs.75,57,000/-. As in the other matters, it is contended by the appellant, that in view of Section 31 of I&B Code, since the claim made by the respondent was not a part of the Resolution Plan, it would get extinguished on the Resolution Plan being approved by NCLT. The said writ petition came to be rejected by the High Court on the ground, that the petitioner had no locus and that the Resolution Plan was not binding on the State Government since it had not participated in the CIRP proceedings. SUBMISSIONS IN CIVIL APPEAL NO.8129 OF 2019 [Ghanashyam Mishra and Sons Private Limited vs. Edelweiss Asset Reconstruction Company Limited & Others]

27.Dr. A.M. Singhvi, learned Senior Counsel appearing for GMSPL submitted, that as held by this Court in a catena of decisions, the commercial wisdom of CoC in accepting or rejecting the Resolution Plan is paramount. He submitted, that the interference would be warranted within the limited parameters of judicial review that are available under the Statute. The learned Senior Counsel further submitted, that once the adjudicating authority approves the Resolution Plan, it shall be binding on everyone including Corporate Debtor and its employees, Members, Creditors including the Central Government, any State Government or any local authority, to whom a debt is owed in respect of the payment of dues arising under any law for the time being in force, guarantors and other stake-holders, involved in the Resolution Plan. He submitted, that once a Resolution Plan is accepted, if any additional liability is thrust upon the Resolution Plan, the entire plan would become unworkable, resulting into the frustration of the very purpose of the enactment i.e. revival of the Corporate Debtor.

28.Dr. Singhvi further submitted, that perusal of the Resolution Plan submitted by EARC and particularly Clause 2.1.3 thereof would reveal, that the said Plan also provides, that all the debts and all dues, liability or obligations other than the one, which are included in Resolution Plan, shall be deemed to have been irrevocably waived and permanently extinguished and written off in full with effect from the effective date. He submitted that a similar provision is also made in the Resolution Plan submitted by GMSPL.

29.The learned Senior Counsel further submitted, that the Resolution Plan submitted by GMSPL is for an amount of Rs.321.19 crore. If additional liability of Rs.648.89 crore is saddled upon the resolution applicant, the total resolution plan itself would be unworkable.

30.Dr. Singhvi further submitted that NCLT has found the conduct of EARC not to be bona fide. He submitted, that NCLT has categorically found, that the application filed by EARC was a deliberate attempt to stage manage an objection against the approval of Resolution Plan submitted by an entity, other than it. He submitted, that as a matter of fact, NCLT has imposed costs of Rs. 1 lakh on EARC taking into consideration its conduct.

31.Dr. Singhvi relied upon the judgments of this Court in the cases of K. Shashidhar vs. Indian Overseas Bank and Others2, Committee of Creditors of Essar Steel India Limited through Authorised Signatory vs. Satish Kumar Gupta & Ors. (supra) Maharashtra Seamless Limited vs. Padmanabhan Venkatesh and others3, Karad Urban Cooperative Bank Ltd. vs. Swwapnil Bhingardevay & Ors.4 and Kalpraj Dharamshi and Another vs. Kotak Investment Advisors Limited and Another5.

32.Mr. Prashant Bhushan, learned Counsel appearing on behalf of the EARC-respondent No.1 submitted, that by the impugned order, NCLAT has only reserved the right of EARC to invoke the Corporate Guarantee in its favour. He submitted, that on account of the erroneous conduct of the proceedings by RP and CoC, EARC has been put in a precarious condition. He submitted, that on one hand RP has not recognized EARC as a financial creditor thereby, depriving its nomination to CoC and participation in finalization of the proceedings. On the other hand, denying EARC to encash its bank guarantee would leave EARC high and dry. A substantial claim of 5 2021 SCC OnLine SC 204 EARC would be rendered futile, in the event the order passed by NCLT is to be maintained. He therefore submitted, that no interference is warranted in the appeal.

33.In reply to the submissions of the appellant that EARC has not preferred an appeal against the order of NCLAT though its appeal was disposed of is concerned, the learned Counsel relying on the judgment of this Court in the case of Banarasi and Another v. Ram Phal6 submitted, that since the findings recorded by NCLAT are in its favour, there was no occasion for it to prefer an appeal. He submitted, that in any event, it can raise the grounds insofar as the findings in the impugned order, which are adverse to EARC in addition to supporting the final judgment in its favour.

34.Shri Neeraj Kishan Kaul, learned Senior Counsel appearing on behalf of the appellant submitted, that assuming without admitting that EARC could be considered as the financial creditor, it could have had voting right only to the extent of 9% and even in that eventuality, resolution plan of GMSPL would have been approved by CoC with the majority of more than 80%. SUBMISSIONS IN CIVIL APPEAL ARISING OUT OF SPECIAL LEAVE PETITION (CIVIL) NO.11232 OF 2020 [UltraTech Nathdwara Cement Limited v. State of Uttar Pradesh and Others]

35.Dr. Singhvi, learned Senior Counsel appearing on behalf of the appellant-UltraTech Nathdwara Cement Limited submitted, that a conjoint reading of sub-section (10) of Section 3 and sub-sections (20) and (21) of Section 5 would show, that even if there was no amendment to Section 31 of I&B Code by the 2019 Amendment, still the Central Government and any State Government or the local authorities were bound by the same and any statutory dues owed to them by the Corporate Debtor, which were not included in the resolution plan, shall stand extinguished. He submitted, that the 2019 Amendment, which amends Section 31 is clarificatory in nature and only declares and clarifies the position of law, which has already been in existence i.e. the Central Government, any State Government and local authorities are bound by the CIRP. He submitted, that this Court in the cases of State Bank of India vs. V. Ramakrishnan and Another7 and B.K. Educational Services Private Limited v. Parag Gupta and Associates8 has held the amendment to certain provisions of the I&B Code to be clarificatory in nature. The learned Senior Counsel submitted, that upon perusal of the provisions of the I&B Code, it is clear, that once NCLT grants approval to the Resolution Plan, all proceedings pending insofar as the Corporate Debtor is concerned, which are not included in the Resolution Plan shall stand automatically stayed. He submitted, that perusal of the chart pertaining to the dues of the respondents, clearly reveal that all of the said dues are prior to the admission of the Company Petition filed under Section 7 of I&B Code and therefore, the respondents are not entitled to continue the proceedings in respect thereof since the same do not form part of the approved resolution plan.

36.He submitted, that the orders passed by NCLAT were challenged before this Court by the Revenue Authorities of the Rajasthan State as well as the Commissioner of Central Excise (GST), Jodhpur and this Court had refused to interfere with the order passed by NCLAT. It is submitted, that in this background, the authorities are totally unjustified in continuing the proceedings, which are undisputedly with respect to the dues prior to admission of the application under Section 7 of I&B Code, only on the ground, that there is no specific stay order passed by NCLT.

37.He submitted, that the High Court has erred in refusing to entertain the writ petition of the appellant solely on the ground, that an alternative remedy by way of a second appeal was available to the appellant. He submitted, that in catena of judgments, this Court has held, that non exercise of jurisdiction under Article 226, despite availability of alternative remedy is a rule of self-restraint and in the appropriate areas carved out by this Court, entertaining a petition under Article 226, despite availability of alternative remedy, would be permissible. He submitted, that applying the said principle, the proceedings before the authority since stand prohibited in view of the provisions of the I&B Code, the High Court erred in refusing to entertain the petition.

38.The learned Senior Counsel further submitted, that despite the pendency of the present appeal, the Joint Commissioner, Commercial Tax, Ghaziabad has passed an Assessment Order dated 2.2.2021 for the period prior to admission of Section 7 petition, as such the appellant has filed IA No.26255/2021 challenging the said assessment order.

39.Dr. Singhvi further submitted, that though the respondent authorities were aware of the Resolution Proceedings, they had failed to submit any claim, in response to the public notices issued by RP.

40.Shri V. Shekhar, learned Senior Counsel appearing on behalf of the State Authorities justified the impugned order and prayed for dismissal of the appeal. He submitted, that the order passed by NCLT would not come in the way of adjudicatory proceedings, which were continued by the authorities under the provisions of the relevant Statutes. He submitted, that the assessment orders which were passed in accordance with law were duly approved in appeal by the higher authority and therefore, the High Court was justified in observing that the petition was not maintainable, in view of the availability of alternative remedy of filing a second appeal.

41.The learned Senior Counsel submitted, that the adjudicatory authorities acting under the relevant statutes being not a part of CoC are not bound by the decision of CoC, which is approved by NCLT. He further submitted, that merely continuation of the adjudicatory proceedings cannot be a part of coercive action.

42.Shri V. Shekhar submitted, that 2019 Amendment cannot be said to be clarificatory in nature and as such, the proceedings, which were pending prior to the date of the amendment to Section 31, would not be affected by the 2019 Amendment to Section 31. He therefore prayed for dismissal of the appeal. SUBMISSIONS IN WRIT PETITION (CIVIL) NO. 1177 OF 2020 [M/s Monnet Ispat & Energy Limited and Another v. State of Odisha and Another]

43.Shri Kaul, learned Senior Counsel appearing on behalf of the writ petitioner submitted, that in spite of clear legal position as enunciated in various judgments of this Court, various authorities in different parts of the country are continuing with the proceedings in respect of statutory dues existing prior to the date of approval of resolution plan by NCLT. He submitted, that various High Courts have held, relying on the judgments of this Court, that statutory dues prior to the date of admission of Section 7 application and which are not part of the Resolution Plan shall stand extinguished and the proceedings in respect thereof would no more survive. However, in some States, the authorities of the State are flouting the law and as such, the petitioner has approached this Court in its extraordinary jurisdiction under Article 32 of the Constitution so that there is an authoritative pronouncement by this Court. He submitted, that the respondent authorities in the present case had failed to file the claims in response to the statutory public notice issued by RP. The first demand by the authorities raised is only after the plan was approved by CoC on 9.4.2018. He also relied on the speech delivered by the Hon’ble Finance Minister in Rajya Sabha on 29.7.2019, to buttress his submissions that the 2019 Amendment of Section 31 of I&B Code is clarificatory in nature. SUBMISSIONS IN APPEALS ARISING OUT OF SPECIAL LEAVE PETITION (CIVIL) NOS.7147-7150 OF 2020 [Electrosteel Steels Limited, Bokaro, Jharkhand vs. State of Jharkhand and Others]

44.Dr. Singhvi submitted, that in the present matter though NCLT had approved the Resolution Plan on 17.4.2018 and NCLAT had dismissed the appeal on 10.8.2018, only thereafter on 17.8.2018, the re-assessment order came to be passed for the period 2012-13. He submitted, that immediately after the appellant discovered about the said order, the same was challenged in a writ petition. However, the High Court has dismissed the petition on erroneous grounds. It is submitted, that one of the grounds on which the petition is dismissed is, that it is the Vedanta Limited, which was an aggrieved party since it was a Resolution Applicant and as such, the petition at the behest of the present appellant, which was a Corporate Debtor was not tenable. He submitted, that the second ground on which the writ petition is dismissed is that the State Authorities had not participated in CIRP and the order passed by NCLT was binding only on the parties, which have participated in the Resolution process. He submitted, that both the grounds are erroneous inasmuch as, Vedanta Limited is a successful Resolution Applicant. The Resolution process is in respect of the present appellant writ petitioner, which is the Corporate Debtor and as such, the petition at the behest of the present appellant was very much tenable in law. Insofar as the second ground of the High Court is concerned, he submitted, that if such a view is accepted, it will frustrate the entire object of I&B Code and the revival of the Debtor Companies would be impossible if the successful resolution applicants are sprung with the surprise debts, which are not part of the Resolution Plan.

45.Shri Gurukrishna Kumar, learned Senior Counsel appearing on behalf of the respondent submitted, that the entire process conducted by RP and CoC is fraudulent. He submitted, that in accordance with Section 29 and specifically, clause H of Regulation 36, RP was required to furnish the details of the material litigation and an ongoing investigation or proceedings initiated by Government and Statutory Authorities in the information memorandum. However, the Resolution Applicant had fraudulently used I&B Code by suppressing the vital information with regard to the same and thereby, denying the legitimate dues of public exchequer.

46.Dr. Singhvi in rejoinder submitted, that it is respondent’s own admission that they have not participated in the proceedings conducted by RP, CoC, NCLT, NCLAT and even this Court. He submitted, that when the other Departments/Ministries had participated in the proceedings and raised their claims, it does not lie in the mouth of respondents to say, that they were not aware about CIRP proceedings.

47.In the said appeal, an intervention application has also been filed on behalf of Tata Steel BSL Limited. It is contended in the intervention application, that though the resolution process in respect of intervener/applicant was complete, still the Revenue Authorities were continuing with the proceedings with respect to the dues owed prior to the date of approval of resolution plan by NCLT. It is the submission of the intervener/applicant, that as such, legal position needs to be settled by this Court and therefore the intervener/applicant has filed the present intervention application. Shri Jaideep Gupta, learned Senior Counsel appearing on behalf of the said intervenor - applicant has made submissions on similar lines as are advanced by Dr. Singhvi and Shri Kaul, learned Senior Counsel appearing in the other matters. CONSIDERATION

48.We have extensively heard the learned counsel appearing for the parties in all the matters, perused the written submissions and materials on record.

49.The provisions of I&B Code have undergone scrutiny in various judgments of this Court. We would not like to burden the present judgment with the provisions of the statute, which have been duly reproduced and considered in the earlier judgments of this Court.

50.In the case of Innoventive Industries Ltd. vs. ICICI Bank & Anr.9 after reproducing the ‘Statement of Objects and Reasons’ of I&B Code in paragraph 12, this Court observed thus: “13. One of the important objectives of the Code is to bring the insolvency law in India under a single unified um brella with the object of speeding up of the insolvency process. As per the data available with the World Bank in 2016, insolvency resolution in India took 4.3 years on an average, which was much higher when compared with the United Kingdom (1 year), USA (1.5 years) and South Africa (2 years). The World Bank's Ease of Doing Business Index, 2015, ranked India as country number 135 out of 190 countries on the ease of resolving insolvency based on various indicia.”

51.This Court thereafter in paragraph 16 reproduced the relevant paragraphs contained in the report of the Bankruptcy Law Reforms Committee Report of 2015. Thereafter, this Court reproduced all the relevant provisions of I&B Code in paragraphs 18 to 26.

52.This Court in the case of Innoventive Industries Ltd. (supra) thereafter elaborately discussed the scheme of the various provisions of the I&B Code in paragraphs 27 to 32, which read thus: “27. The scheme of the Code is to ensure that when a default takes place, in the sense that a debt becomes due and is not paid, the insolvency resolution process begins. Default is defined in Section 3(12) in very wide terms as meaning non-pay ment of a debt once it becomes due and payable, which includes non-payment of even part thereof or an instalment amount. For the meaning of “debt”, we have to go to Section 3(11), which in turn tells us that a debt means a liability of obligation in respect of a “claim” and for the meaning of “claim”, we have to go back to Section 3(6) which defines “claim” to mean a right to payment even if it is disputed. The Code gets triggered the mo ment default is of rupees one lakh or more (Section 4). The corporate insol vency resolution process may be triggered by the corporate debtor itself or a finan cial creditor or operational creditor. A dis tinction is made by the Code between debts owed to financial creditors and op erational creditors. A financial creditor has been defined under Section 5(7) as a person to whom a financial debt is owed and a financial debt is defined in Section 5(8) to mean a debt which is disbursed against consideration for the time value of money. As opposed to this, an opera tional creditor means a person to whom an operational debt is owed and an oper ational debt under Section 5(21) means a claim in respect of provision of goods or services. 28. When it comes to a financial creditor triggering the process, Section 7 becomes relevant. Under the Explanation to Sec tion 7(1), a default is in respect of a fi nancial debt owed to any financial credi tor of the corporate debtor — it need not be a debt owed to the applicant financial creditor. Under Section 7(2), an applica tion is to be made under sub-section (1) in such form and manner as is pre scribed, which takes us to the Insolvency and Bankruptcy (Application to Adjudi cating Authority) Rules, 2016. Under Rule 4, the application is made by a fi nancial creditor in Form 1 accompanied by documents and records required therein. Form 1 is a detailed form in 5 parts, which requires particulars of the applicant in Part I, particulars of the cor porate debtor in Part II, particulars of the proposed interim resolution professional in Part III, particulars of the financial debt in Part IV and documents, records and evidence of default in Part V. Under Rule 4(3), the applicant is to dispatch a copy of the application filed with the ad judicating authority by registered post or speed post to the registered office of the corporate debtor. The speed, within which the adjudicating authority is to as certain the existence of a default from the records of the information utility or on the basis of evidence furnished by the fi nancial creditor, is important. This it must do within 14 days of the receipt of the application. It is at the stage of Sec tion 7(5), where the adjudicating author ity is to be satisfied that a default has oc curred, that the corporate debtor is enti tled to point out that a default has not occurred in the sense that the “debt”, which may also include a disputed claim, is not due. A debt may not be due if it is not payable in law or in fact. The mo ment the adjudicating authority is sat isfied that a default has occurred, the application must be admitted unless it is incomplete, in which case it may give notice to the applicant to rectify the defect within 7 days of receipt of a notice from the adjudicating authority. Under sub-section (7), the adjudicating authority shall then communicate the or der passed to the financial creditor and corporate debtor within 7 days of admis sion or rejection of such application, as the case may be. 29. The scheme of Section 7 stands in contrast with the scheme under Section 8 where an operational creditor is, on the occurrence of a default, to first deliver a demand notice of the unpaid debt to the operational debtor in the manner pro vided in Section 8(1) of the Code. Under Section 8(2), the corporate debtor can, within a period of 10 days of receipt of the demand notice or copy of the invoice mentioned in sub-section (1), bring to the notice of the operational creditor the exis tence of a dispute or the record of the pendency of a suit or arbitration proceed ings, which is pre-existing—i.e. before such notice or invoice was received by the corporate debtor. The moment there is existence of such a dispute, the opera tional creditor gets out of the clutches of the Code. 30. On the other hand, as we have seen, in the case of a corporate debtor who commits a default of a financial debt, the adjudicating authority has merely to see the records of the information utility or other evidence produced by the financial creditor to satisfy itself that a default has occurred. It is of no matter that the debt is disputed so long as the debt is “due” i.e. payable unless interdicted by some law or has not yet become due in the sense that it is payable at some future date. It is only when this is proved to the satisfaction of the adjudicating authority that the adjudicating authority may reject an application and not otherwise. 31. The rest of the insolvency resolution process is also very important. The entire process is to be completed within a period of 180 days from the date of admission of the application under Section 12 and can only be extended beyond 180 days for a further period of not exceeding 90 days if the committee of creditors by a voting of 75% of voting shares so decides. It can be seen that time is of essence in seeing whether the corporate body can be put back on its feet, so as to stave off liquida tion. 32. As soon as the application is admit ted, a moratorium in terms of Section 14 of the Code is to be declared by the adju dicating authority and a public an nouncement is made stating, inter alia, the last date for submission of claims and the details of the interim resolution pro fessional who shall be vested with the management of the corporate debtor and be responsible for receiving claims. Under Section 17, the erstwhile management of the corporate debtor is vested in an in terim resolution professional who is a trained person registered under Chapter IV of the Code. This interim resolution professional is now to manage the opera tions of the corporate debtor as a going concern under the directions of a com mittee of creditors appointed under Sec tion 21 of the Act. Decisions by this com mittee are to be taken by a vote of not less than 75% of the voting share of the financial creditors. Under Section 28, a resolution professional, who is none other than an interim resolution professional who is appointed to carry out the resolu tion process, is then given wide powers to raise finances, create security interests, etc. subject to prior approval of the com mittee of creditors.”

53.After discussing the relevant provisions of I&B Code, this Court observed thus: “33. Under Section 30, any person who is interested in putting the corporate body back on its feet may submit a res olution plan to the resolution profes sional, which is prepared on the basis of an information memorandum. This plan must provide for payment of in solvency resolution process costs, management of the affairs of the cor porate debtor after approval of the plan, and implementation and supervi sion of the plan. It is only when such plan is approved by a vote of not less than 75% of the voting share of the fi nancial creditors and the adjudicating authority is satisfied that the plan, as approved, meets the statutory require ments mentioned in Section 30, that it ultimately approves such plan, which is then binding on the corporate debtor as well as its employees, mem bers, creditors, guarantors and other stakeholders. Importantly, and this is a major departure from previous legislation on the subject, the moment the adjudi cating authority approves the resolution plan, the moratorium order passed by the authority under Section 14 shall cease to have effect. The scheme of the Code, therefore, is to make an attempt, by divesting the erstwhile management of its powers and vesting it in a profes sional agency, to continue the busi ness of the corporate body as a going concern until a resolution plan is drawn up, in which event the manage ment is handed over under the plan so that the corporate body is able to pay back its debts and get back on its feet. All this is to be done within a period of 6 months with a maximum extension of an other 90 days or else the chopper comes down and the liquidation process begins.”

54.It could thus be seen, that one of the dominant objects of I&B Code is to see to it, that an attempt has to be made to revive the Corporate Debtor and make it a running concern. For that, a resolution applicant has to prepare a resolution plan on the basis of the Information Memorandum. The Information Memorandum, which is required to be prepared in accordance with Section 29 of I&B Code along with Regulation 36 of the Regulations, is required to contain various details, which have been gathered by RP after receipt of various claims in response to the statutorily mandated public notice. The resolution plan is required to provide for the payment of insolvency resolution process costs, management of the affairs of the Corporate Debtor after approval of the resolution plan; the implementation and supervision of the resolution plan. It is only after the Adjudicating Authority satisfies itself, that the plan as approved by CoC with the requisite voting share of financial creditors meets the requirement as referred to in sub-section (2) of Section 30, grants its approval to it. It is only thereafter, that the said plan is binding on the Corporate Debtor as well as its employees, members, creditors, guarantors and other stakeholders involved in the resolution Plan. The moratorium order passed by the Adjudicating Authority under Section 14 shall cease to operate, once the Adjudicating Authority approves the resolution plan. The scheme of I&B Code therefore is, to make an attempt, by divesting the erstwhile management of its powers and vesting it in a professional agency, to con tinue the business of the Corporate Debtor as a going con cern until a resolution plan is drawn up. Once the resolu tion plan is approved, the management is handed over un der the plan to the successful applicant so that the Corpo rate Debtor is able to pay back its debts and get back on its feet.

55.This Court recently in the case of Kalpraj

Dharamshi and another vs. Kotak Investment Advisors

Ltd. and another (supra) has, in detail, considered the

provisions of Sections 30 and 31 of I&B Code, the

Bankruptcy Law Reforms Committee (BLRC) Report of 2015

and the judgments of this Court in the case K. Sashidhar

(supra), Committee of Creditors of Essar Steel India

Limited through Authorised Signatory vs. Satish

Kumar Gupta & Ors. (supra) and Maharashtra Seamless

Limited vs. Padmanabhan Venkatesh and others (supra)

and observed thus:

“139. It is thus clear, that the

Committee was of the view, that for

deciding key economic question in the

bankruptcy process, the only one correct

forum for evaluating such possibilities,

and making a decision was, a creditors

committee, wherein all financial creditors

have votes in proportion to the magnitude

of debt that they hold. The BLRC has

observed, that laws in India in the past

have brought arms of the Government

(legislature, executive or judiciary) into

the question of bankruptcy process. This

has been strictly avoided by the

Committee and it has been provided, that

the decision with regard to appropriate

disposition of a defaulting firm, which is

a business decision, should only be made

by the creditors. It has been observed,

that the evaluation of proposals to keep

the entity as a going concern, including

decisions about the sale of business or

units, restructuring of debt, etc., are

required to be taken by the Committee of

the Financial Creditors. It has been

provided, that the choice of the solution to keep the entity as a going concern will be voted upon by CoC and there are no constraints on the proposals that the resolution professional can present to CoC. The requirements, that the resolution professional needs to confirm to the Adjudicator, are:

(i) that the solution must explicitly

require the repayment of any

interim finance and costs of the

insolvency resolution process will be

paid in priority to other payments;

(ii) that the plan must explicitly

include payment to all creditors not

on the creditors committee, within a

reasonable period after the solution

is implemented; and lastly

(iii) the plan should comply with

existing laws governing the actions

of the entity while implementing the

solutions.

140. The Committee also expressed the opinion, that there should be freedom permitted to the overall market, to propose solutions on keeping the entity as a going concern. The Committee opined, that the details as to how the insolvency is to be resolved or as to how the entity is to be revived, or the debt is to be restructured will not be provided in the I&B Code but such a decision will come from the deliberations of CoC in response to the solutions proposed by the market.

141. This Court in the case of K. Sashidhar (supra) observed thus:

“32. Having heard the learned

counsel for the parties, the moot

question is about the sequel of the

approval of the resolution plan by CoC

of the respective corporate debtor,

namely, KS&PIPL and IIL, by a vote of

less than seventy-five per cent of voting

share of the financial creditors; and

about the correctness of the view taken

by NCLAT that the percentage of voting

share of the financial creditors

specified in Section 30(4) of the I&B

Code is mandatory. Further, is it

open to the adjudicating

authority/appellate authority to

reckon any other factor other than

specified in Sections 30(2) or 61(3)

of the I&B Code as the case may be

which, according to the resolution

applicant and the stakeholders

supporting the resolution plan, may

be relevant?”

142. After considering the judgment of this Court in the case of Arcelormittal India Private Limited v. Satish Kumar Gupta46 and the relevant provisions of the I&B Code, this court further observed in K. Sashidhar (supra) thus:

“52. As aforesaid, upon receipt of a

“rejected” resolution plan the

adjudicating authority (NCLT) is not

expected to do anything more; but is

obligated to initiate liquidation process under Section 33(1) of the I&B Code. The legislature has not endowed the adjudicating authority (NCLT) with the jurisdiction or authority to analyse or evaluate the commercial decision of CoC much less to enquire into the justness of the rejection of the resolution plan by the dissenting financial creditors. From the legislative history and the background in which the I&B Code has been enacted, it is noticed that a completely new approach has been adopted for speeding up the recovery of the debt due from the defaulting companies. In the new approach, there is a calm period followed by a swift resolution process to be completed within 270 days (outer limit) failing which, initiation of liquidation process has been made inevitable and mandatory. In the earlier regime, the corporate debtor could indefinitely continue to enjoy the protection given under Section 22 of the Sick Industrial Companies Act, 1985 or under other such enactments which has now been forsaken. Besides, the commercial wisdom of CoC has been given paramount status without any judicial intervention, for ensuring completion of the stated processes within the timelines prescribed by the I&B Code. There is an intrinsic assumption that financial creditors are fully informed about the viability of the corporate debtor

and feasibility of the proposed

resolution plan. They act on the

basis of thorough examination of

the proposed resolution plan and

assessment made by their team of

experts. The opinion on the subject

matter expressed by them after due

deliberations in CoC meetings

through voting, as per voting

shares, is a collective business

decision. The legislature,

consciously, has not provided any

ground to challenge the

“commercial wisdom” of the

individual financial creditors or

their collective decision before the

adjudicating authority. That is

made non-justiciable.”

143. This Court has held, that it is not open to the Adjudicating Authority or Appellate Authority to reckon any other factor other than specified in Sections 30(2) or 61(3) of the I&B Code. It has further been held, that the commercial wisdom of CoC has been given paramount status without any judicial intervention for ensuring completion of the stated processes within the timelines prescribed by the I&B Code. This Court thus, in unequivocal terms, held, that there is an intrinsic assumption, that financial creditors are fully informed about the viability of the corporate debtor and feasibility of the proposed resolution plan. They act on the basis of thorough

examination of the proposed resolution plan and assessment made by their team of experts. It has been held, that the opinion expressed by CoC after due deliberations in the meetings through voting, as per voting shares, is a collective business decision. It has been held, that the legislature has consciously not provided any ground to challenge the “commercial wisdom” of the individual financial creditors or their collective decision before the Adjudicating Authority and that the decision of CoC's ‘commercial wisdom’ is made non justiciable.

144. This Court in Committee of through Authorised Signatory (supra) after referring to the judgment of this Court in the case of K. Sashidhar (supra) observed thus:

“64. Thus, what is left to the

majority decision of the Committee of

Creditors is the “feasibility and

viability” of a resolution plan, which

obviously takes into account all

aspects of the plan, 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 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 applicant which

may also result in a consequent

reduction of amounts payable to other

financial and operational

creditors. What is important is that

it is the commercial wisdom of this

majority of creditors which is to

determine, through negotiation

with the prospective resolution

applicant, as to how and in what

manner the corporate resolution

process is to take place.”

145. This Court held, that what is left to the majority decision of CoC is the “feasibility and viability” of a resolution plan, which is required to take into account all aspects of the plan, including the manner of distribution of funds among the various classes of creditors. It has further been held, that CoC is entitled to suggest a modification to the prospective resolution applicant, so that carrying on the business of the Corporate Debtor does not become impossible,

which suggestion may, in turn, be accepted by the resolution applicant with a consequent modification as to distribution of funds, etc. It has been held, that what is important is, the commercial wisdom of the majority of creditors, which is to determine, through negotiation with the prospective resolution applicant, as to how and in what manner the corporate resolution process is to take place.

146. The view taken in the case of K. Sashidhar (supra) and Committee of through Authorised Signatory (supra) has been reiterated by another three Judges Bench of this Court in the case of Maharashtra Seamless Limited (supra).

147. In all the aforesaid three judgments of this Court, the scope of jurisdiction of the Adjudicating Authority (NCLT) and the Appellate Authority (NCLAT) has also been elaborately considered. It will be relevant to refer to paragraph 55 of the judgment in the case of K. Sashidhar (supra), which reads thus:

“55. Whereas, the discretion of the

adjudicating authority (NCLT) is

circumscribed by Section 31 limited to

scrutiny of the resolution plan “as

approved” by the requisite per cent of

voting share of financial creditors.

Even in that enquiry, the grounds on

which the adjudicating authority can

reject the resolution plan is in

reference to matters specified in

Section 30(2), when the resolution plan does not conform to the stated requirements. Reverting to Section 30(2), the enquiry to be done is in respect of whether the resolution plan provides : (i) the payment of insolvency resolution process costs in a specified manner in priority to the repayment of other debts of the corporate debtor, (ii) the repayment of the debts of operational creditors in prescribed manner, (iii) the management of the affairs of the corporate debtor, (iv) the implementation and supervision of the resolution plan, (v) does not contravene any of the provisions of the law for the time being in force, (vi) conforms to such other requirements as may be specified by the Board. The Board referred to is established under Section 188 of the I&B Code. The powers and functions of the Board have been delineated in Section 196 of the I&B Code. None of the specified functions of the Board, directly or indirectly, pertain to regulating the manner in which the financial creditors ought to or ought not to exercise their commercial wisdom during the voting on the resolution plan under Section 30(4) of the I&B Code. The subjective satisfaction of the financial creditors at the time of voting is bound to be a mixed baggage of variety of factors. To wit, the feasibility and viability of the proposed resolution plan and including their perceptions about the general capability of the resolution applicant to translate the

projected plan into a reality. The

resolution applicant may have given

projections backed by normative data

but still in the opinion of the

dissenting financial creditors, it would

not be free from being speculative.

These aspects are completely within

the domain of the financial creditors

who are called upon to vote on the

resolution plan under Section 30(4) of

the I&B Code.”

148. It has been held, that in an enquiry under Section 31, the limited enquiry that the Adjudicating Authority is permitted is, as to whether the resolution plan provides:

(i) the payment of insolvency resolution

process costs in a specified manner

in priority to the repayment of other

debts of the corporate debtor,

(ii) the repayment of the debts of

operational creditors in prescribed

manner,

(iii) the management of the affairs of

the corporate debtor,

(iv) the implementation and

supervision of the resolution plan,

(v) the plan does not contravene any of

the provisions of the law for the time

being in force,

(vi) conforms to such other

requirements as may be specified by

the Board.

149. It will be further relevant to refer to the following observations of this Court in K. Sashidhar (supra):

57. …Indubitably, the remedy of

appeal including the width of

jurisdiction of the appellate authority

and the grounds of appeal, is a

creature of statute. The provisions

investing jurisdiction and authority

in NCLT or NCLAT as noticed

earlier, have not made the

commercial decision exercised by

CoC of not approving the resolution

plan or rejecting the same,

justiciable. This position is

reinforced from the limited grounds

specified for instituting an appeal

that too against an order

“approving a resolution plan”

under Section 31. First, that the

approved resolution plan is in

contravention of the provisions of any

law for the time being in force. Second,

there has been material irregularity in

exercise of powers “by the resolution

professional” during the corporate

insolvency resolution period. Third, the

debts owed to operational creditors

have not been provided for in the

resolution plan in the prescribed

manner. Fourth, the insolvency

resolution plan costs have not been

provided for repayment in priority to

all other debts. Fifth, the resolution

plan does not comply with any other

criteria specified by the Board.

Significantly, the matters or grounds—

be it under Section 30(2) or under

Section 61(3) of the I&B Code —are

regarding testing the validity of the

“approved” resolution plan by CoC;

and not for approving the resolution

plan which has been disapproved or

deemed to have been rejected by CoC

in exercise of its business decision.”

150. It will therefore be clear, that this Court, in unequivocal terms, held, that the appeal is a creature of statute and that the statute has not invested jurisdiction and authority either with NCLT or NCLAT, to review the commercial decision exercised by CoC of approving the resolution plan or rejecting the same.

151. The position is clarified by the following observations in paragraph 59 of the judgment in the case of K. Sashidhar (supra), which reads thus:

“59. In our view, neither the

adjudicating authority (NCLT) nor the

appellate authority (NCLAT) has been

endowed with the jurisdiction to

reverse the commercial wisdom of the

dissenting financial creditors and that

too on the specious ground that it is

only an opinion of the minority

financial creditors…..”

152. This Court in Committee of through Authorised Signatory (supra) after

reproducing certain paragraphs in K. Sashidhar (supra) observed thus:

“Thus, it is clear that the limited

judicial review available, which can in

no circumstance trespass upon a

business decision of the majority of the

Committee of Creditors, has to be

within the four corners of Section 30(2)

of the Code, insofar as the

Adjudicating Authority is concerned,

and Section 32 read with Section 61(3)

of the Code, insofar as the Appellate

Tribunal is concerned, the parameters

of such review having been clearly laid

down in K. Sashidhar”

153. It can thus be seen, that this Court has clarified, that the limited judicial review, which is available, can in no circumstance trespass upon a business decision arrived at by the majority of CoC.

154. In the case of Maharashtra Seamless Limited (supra), NCLT had approved the plan of appellant therein with regard to CIRP of United Seamless Tubulaar (P) Ltd. In appeal, NCLAT directed, that the appellant therein should increase upfront payment to Rs. 597.54 crore to the “financial creditors”, “operational creditors” and other creditors by paying an additional amount of Rs. 120.54 crore. NCLAT further directed, that in the event the “resolution applicant” failed to undertake the payment of additional amount of Rs. 120.54 crore in addition to Rs. 477 crore and deposit the said amount in escrow

account within 30 days, the order of approval of the ‘resolution plan’ was to be treated to be set aside. While allowing the appeal and setting aside the directions of NCLAT, this Court observed thus:

“30. The appellate authority has, in

our opinion, proceeded on equitable

perception rather than commercial

wisdom. On the face of it, release of

assets at a value 20% below its

liquidation value arrived at by the

valuers seems inequitable. Here, we

feel the Court ought to cede ground to

the commercial wisdom of the creditors

rather than assess the resolution plan

on the basis of quantitative analysis.

Such is the scheme of the Code.

Section 31(1) of the Code lays down in

clear terms that for final approval of a

resolution plan, the adjudicating

authority has to be satisfied that the

requirement of sub-section (2) of

Section 30 of the Code has been

complied with. The proviso to Section

31(1) of the Code stipulates the other

point on which an adjudicating

authority has to be satisfied. That

factor is that the resolution plan has

provisions for its implementation. The

scope of interference by the

adjudicating authority in limited

judicial review has been laid down

in Essar Steel [Essar Steel India Ltd.

Committee of Creditors v. Satish Kumar

Gupta, (2020) 8 SCC 531], the relevant

passage (para 54) of which we have

reproduced in earlier part of this

judgment. The case of MSL in their

appeal is that they want to run the

company and infuse more funds. In

such circumstances, we do not think

the appellate authority ought to have

interfered with the order of the

adjudicating authority in directing the

successful resolution applicant to

enhance their fund inflow upfront.”

155. This Court observed, that the

Court ought to cede ground to the

commercial wisdom of the creditors

rather than assess the resolution plan on

the basis of quantitative analysis. This

Court clearly held, that the appellate

authority ought not to have interfered

with the order of the adjudicating

authority by directing the successful

resolution applicant to enhance their

fund inflow upfront.

156. It would thus be clear, that the

legislative scheme, as interpreted by

various decisions of this Court, is

unambiguous. The commercial wisdom of

CoC is not to be interfered with, excepting

the limited scope as provided under

Sections 30 and 31 of the I&B Code.”

56. Another three Judges Bench of this Court in the

case of Karad Urban Cooperative Bank Ltd. vs.

Swwapnil Bhingardevay & Ors. (supra), taking a similar

view, has observed thus:

“14. The principles laid down in the

aforesaid decisions, make one thing very

clear. If all the factors that need to be

taken into account for determining

whether or not the corporate debtor can

be kept running as a going concern have

been placed before the Committee of

Creditors and CoC has taken a con

scious decision to approve the resolution

plan, then the adjudicating authority will

have to switch over to the hands off

mode. It is not the case of the corporate

debtor or its promoter/Director or any

one else that some of the factors which

are crucial for taking a decision regard

ing the viability and feasibility, were not

placed before CoC or the resolution pro

fessional….”

57. It could thus be seen, that the legislature has

given paramount importance to the commercial wisdom of

CoC and the scope of judicial review by Adjudicating

Authority is limited to the extent provided under Section 31

of I&B Code and of the Appellate Authority is limited to the

extent provided under sub-section (3) of Section 61 of the

I&B Code, is no more res integra. 58. Bare reading of Section 31 of the I&B Code would

also make it abundantly clear, that once the resolution plan

is approved by the Adjudicating Authority, after it is

satisfied, that the resolution plan as approved by CoC meets

the requirements as referred to in sub-section (2) of Section

30, it shall be binding on the Corporate Debtor and its

employees, members, creditors, guarantors and other

stakeholders. Such a provision is necessitated since one of

the dominant purposes of the I&B Code is, revival of the

Corporate Debtor and to make it a running concern. 59. The resolution plan submitted by successful

resolution applicant is required to contain various

provisions, viz., provision for payment of insolvency

resolution process costs, provision for payment of debts of

operational creditors, which shall not be less than the

amount to be paid to such creditors in the event of

liquidation of the Corporate Debtor under section 53; or the

amount that would have been paid to such creditors, if the

amount to be distributed under the resolution plan had

been distributed in accordance with the order of priority in

sub-section (1) of section 53, whichever is higher. The

resolution plan is also required to provide for the payment

of debts of financial creditors, who do not vote in favour of

the resolution plan, which also shall not be less than the

amount to be paid to such creditors in accordance with sub

section (1) of section 53 in the event of a liquidation of the

Corporate Debtor. Explanation 1 to clause (b) of sub

section (2) of Section 30 of the I&B Code clarifies for the

removal of doubts, that a distribution in accordance with

the provisions of the said clause shall be fair and equitable

to such creditors. The resolution plan is also required to

provide for the management of the affairs of the Corporate

Debtor after approval of the resolution plan and also the

implementation and supervision of the resolution plan.

Clause (e) of sub-section (2) of Section 30 of I&B Code also

casts a duty on RP to examine, that the resolution plan does

not contravene any of the provisions of the law for the time

being in force. 60. Perusal of Section 29 of the I&B Code read with

Regulation 36 of the Regulations would reveal, that it

requires RP to prepare an information memorandum

containing various details of the Corporate Debtor so that

the resolution applicant submitting a plan is aware of the

assets and liabilities of the Corporate Debtor, including the

details about the creditors and the amounts claimed by

them. It is also required to contain the details of guarantees

that have been given in relation to the debts of the corporate

debtor by other persons. The details with regard to all

material litigation and an ongoing investigation or

proceeding initiated by Government and statutory

authorities are also required to be contained in the

information memorandum. So also the details regarding the

number of workers and employees and liabilities of the

Corporate Debtor towards them are required to be contained

in the information memorandum. 61. All these details are required to be contained in

the information memorandum so that the resolution

applicant is aware, as to what are the liabilities, that he may

have to face and provide for a plan, which apart from

satisfying a part of such liabilities would also ensure, that

the Corporate Debtor is revived and made a running

establishment. The legislative intent of making the

resolution plan binding on all the stake-holders after it gets

the seal of approval from the Adjudicating Authority upon

its satisfaction, that the resolution plan approved by CoC

meets the requirement as referred to in sub-section (2) of

Section 30 is, that after the approval of the resolution plan,

no surprise claims should be flung on the successful

resolution applicant. The dominant purpose is, that he

should start with fresh slate on the basis of the resolution

plan approved. 62. This aspect has been aptly explained by this

Court in the case of Committee of Creditors of Essar

Steel India Limited through Authorised Signatory

(supra).

“107. For the same reason, the im

pugned NCLAT judgment [Standard Char

tered Bank v. Satish Kumar Gupta, 2019

SCC OnLine NCLAT 388] in holding that

claims that may exist apart from those

decided on merits by the resolution pro

fessional and by the Adjudicating Author

ity/Appellate Tribunal can now be de

cided by an appropriate forum in terms of

Section 60(6) of the Code, also militates

against the rationale of Section 31 of the

Code. A successful resolution applicant

cannot suddenly be faced with “unde

cided” claims after the resolution plan

submitted by him has been accepted as

this would amount to a hydra head pop

ping up which would throw into uncer

tainty amounts payable by a prospective

resolution applicant who would success

fully take over the business of the corpo

rate debtor. All claims must be submitted

to and decided by the resolution profes

sional so that a prospective resolution ap

plicant knows exactly what has to be paid

in order that it may then take over and

run the business of the corporate debtor.

This the successful resolution applicant

does on a fresh slate, as has been pointed

out by us hereinabove. For these rea

sons, NCLAT judgment must also be set

aside on this count.”

63. In view of this legal position, we could have very

well stopped here and held, that, the observation made by

NCLAT in the appeal filed by EARC to the effect, that EARC

was entitled to take recourse to such remedies as are

available to it in law, is impermissible in law. 64. As held by this Court in the case of Pr.

Commissioner of Income Tax vs. Monnet Ispat and

Energy Ltd.10, in view of provisions of Section 238 of I&B

Code, the provisions thereof will have an overriding effect, if

there is any inconsistency with any of the provisions of the

law for the time being in force or any instrument having

10 SLP(C) No.6483/2018 (order dated 10.8.2018)

effect by virtue of any such law. As such, the observations

made by NCLAT to the aforesaid effect, if permitted to

remain, would frustrate the very purpose for which the I&B

Code is enacted. 65. However, in Civil Appeal arising out of Special

Leave Petition (Civil) No.11232 of 2020, Writ Petition (Civil)

No.1177 of 2020 and Civil Appeals arising out of Special

Leave Petition (Civil) Nos. 7147-7150 of 2020, the issue with

regard to the statutory claims of the State Government and

the Central Government in respect of the period prior to the

approval of resolution plan by NCLT, will have to be

considered. 66. Vide Section 7 of Act No.26 of 2019 (vide S.O.

2953(E), dated 16.8.2019 w.e.f. 16.8.2019), the following

words have been inserted in Section 31 of the I&B Code.

“including the Central Government, any

State Government or any local authority

to whom a debt in respect of the payment

of dues arising under any law for the time

being in force, such as authorities to

whom statutory dues are owed”

67. As such, with respect to the proceedings, which

arise after 16.8.2019, there will be no difficulty. After the

amendment, any debt in respect of the payment of dues

arising under any law for the time being in force including

the ones owed to the Central Government, any State

Government or any local authority, which does not form a

part of the approved resolution plan, shall stand

extinguished. 68. The only question, which remains is, what

happens to such dues if they pertain to a period wherein

Section 7 petitions have been admitted prior to 16.8.2019. 69. To answer the said question, we will have to

consider, as to whether the said amendment is

clarificatory/declaratory in nature or a substantive one. If it

is held, that it is declaratory or clarificatory in nature, it will

have to be held, that such an amendment is retrospective in

nature and exists on the statute book since inception.

However, if the answer is otherwise, the amendment will

have to be held to be prospective in nature, having force

from the date on which the amendment is effected in the

statute. 70. It will be relevant to refer to the “Statement of

Objects and Reasons” (hereafter referred to as “SOR”) of the

Insolvency and Bankruptcy Code (Amendment) Bill, 2019,

which read thus:

“The Insolvency and Bankruptcy Code,

2016 (the Code) was enacted with a view

to consolidate and amend the laws

relating to reorganisation and insolvency

resolution of corporate persons,

partnership firms and individuals in a

time-bound manner for maximisation of

value of assets of such persons, to

promote entrepreneurship, availability of

credit and balance the interests of all the

stakeholders including alteration in the

order or priority of payment of

Government dues and to establish an

Insolvency and Bankruptcy Board of

India.

2. The Preamble to the Code lays

down the objects of the Code to include

“the insolvency resolution” in a time

bound manner for maximisation of value

of assets in order to balance the interests

of all the stakeholders. Concerns have

been raised that in some cases extensive

litigation is causing undue delays, which

may hamper the value maximisation.

There is a need to ensure that all

creditors are treated fairly, without

unduly burdening the Adjudicating

Authority whose role is to ensure that the

resolution plan complies with the

provisions of the Code. Various

stakeholders have suggested that if the

creditors were treated on an equal

footing, when they have different pre

insolvency entitlements, it would

adversely impact the cost and availability

of credit. Further, views have also been

obtained so as to bring clarity on the

voting pattern of financial creditors

represented by the authorised

representative.

3. In view of the aforesaid difficulties

and in order to fill the critical gaps in the

corporate insolvency framework, it has

become necessary to amend certain

provisions of the Insolvency and

Bankruptcy Code.The Insolvency and

Bankruptcy Code (Amendment) Bill,

2019, inter alia, provides for the

following, namely:–

(f) to amend sub-section (1) of

section 31 of the Code to clarify that

the resolution plan approved by the

Adjudicating Authority shall also be

binding on the Central Government,

any State Government or any local

authority to whom a debt in respect of

payment of dues arising under any

law for the time being in force, such

as authorities to whom statutory dues

are owed, including tax authorities;

71. Perusal of the SOR would reveal, that one of the

prime objects of I&B Code was to provide for

implementation of insolvency resolution process in a time

bound manner for maximisation of value of assets in order

to balance the interests of all stakeholders. However, it was

noticed, that in some cases there was extensive litigation

causing undue delays resultantly hampering the value

maximisation. It was also found necessary to ensure, that

all creditors are treated fairly. It was therefore in view of the

various difficulties faced and in order to fill the critical gaps

in the corporate insolvency framework, it was necessary to

amend certain provisions of the I&B Code. Clause (f) of

para 3 of the SOR of the Insolvency and Bankruptcy Code

(Amendment) Bill, 2019 would amply make it clear, that the

legislative intent in amending sub-section (1) of Section 31

of I&B Code was to clarify, that the resolution plan approved

by the Adjudicating Authority shall also be binding on the

Central Government, any State Government or any local

authority to whom a debt is owed in respect of payment of

dues arising under any law for the time being in force, such

as authorities to whom statutory dues are owed, including

tax authorities.

72. In the Rajya Sabha debates, on 29.7.2019, when

the Bill for amending I&B Code came up for discussion,

there were certain issues raised by certain Members. While

replying to the issues raised by certain Members, the

Hon’ble Finance Minister stated thus:

“IBC has actually an overriding effect. For

instance, you asked whether IBC will

override SEBI. Section 238 provides that

IBC will prevail in case of inconsistency

between two laws. Actually, Indian courts

will have to decide, in specific cases,

depending upon the material before

them, but largely, yes, it is IBC. […]

There is also this question about

indemnity for successful resolution

applicant. The amendment now is clearly

making it binding on the Government. It

is one of the ways in which we are

providing that. The Government will not

raise any further claim. The Government

will not make any further claim after

resolution plan is approved. So, that is

going to be a major, major sense of

assurance for the people who are using

the resolution plan. Criminal matters

alone would be proceeded against

individuals and not company. There will

be no criminal proceedings against

successful resolution applicant. There

will be no criminal proceedings against

successful resolution applicant for fraud

by previous promoters. So, I hope that is

absolutely clear. I would want all the hon.

Members to recognize this message and

communicate further that this Code,

therefore, gives that comfort to all new

bidders. So now, they need not be scared

that the taxman will come after them for

the faults of the earlier promoters. No.

Once the resolution plan is accepted, the

earlier promoters will be dealt with as

individuals for their criminality but not

the new bidder who is trying to restore

the company. So, that is very clear

(emphasis supplied)”

73. It could thus be seen, that in the speech the

Hon’ble Finance Minister has categorically stated, that

Section 238 provides that I&B Code will prevail in case of

inconsistency between two laws. She also stated, that there

was question about indemnity for successful resolution

applicant and that the amendment was clearly making it

binding on the Government. She stated, that the

Government will not make any further claim after resolution

plan is approved. So, that is going to be a major sense of

assurance for the people who are using the resolution plan.

She has categorically stated, that she would want all the

Hon’ble Members to recognize this message and

communicate further that I&B Code gives that comfort to all

new bidders. They need not be scared that the taxman will

come after them for the faults of the earlier promoters. She

further states, that once the resolution plan is accepted, the

earlier promoters will be dealt with as individuals for their

criminality but not the new bidder who is trying to restore

the company. 74. This Court in the case of K.P. Varghese v.

Income Tax Officer, Ernakulam and Another11 had an

occasion to consider the question, as to whether the speech

made by the Hon’ble Finance Minister, explaining the

reason for the introduction of the Bill could be referred for

the purpose of ascertaining the mischief sought to be

remedied by the legislation. This Court observed thus:

“Now it is true that the speeches made by

the Members of the Legislature on the

floor of the House when a Bill for enact

ing a statutory provision is being debated

are inadmissible for the purpose of inter

preting the statutory provision but the

speech made by the Mover of the Bill ex

plaining the reason for the introduction of

the Bill can certainly be referred to for the

purpose of ascertaining the mischief

sought to be remedied by the legislation and the object and purpose for which the legislation is enacted. This is in accord with the recent trend in juristic thought not only in western countries but also in India that interpretation of a statute be ing an exercise in the ascertainment of meaning, everything which is logically rel evant should be admissible. In fact there are at least three decisions of this Court, one in Loka Shikshana Trust v. CIT [(1976) 1 SCC 254 : 1976 SCC (Tax) 14 : 101 ITR 234 : 1976 LR 1] , the other in Indian Chamber of Com merce v. Commissioner of Income Tax [(1976) 1 SCC 324 : 1976 SCC (Tax) 41 : 101 ITR 796 : 1976 Tax LR 210] and the third in Additional Commissioner of Income Tax v. Surat Art Silk Cloth Manu facturers' Association [(1980) 2 SCC 31 : 1980 SCC (Tax) 170 : 121 ITR 1] where the speech made by the Finance Minister while introducing the exclusionary clause in Section 2, clause (15) of the Act was relied upon by the Court for the purpose of ascertaining what was the reason for introducing that clause. The speech made by the Finance Minister while moving the amendment introducing sub-section (2) clearly states what were the circum stances in which sub-section (2) came to be passed, what was the mischief for which Section 52 as it then stood did not provide and which was sought to be remedied by the enactment of sub-section (2) and why the enactment of sub-section (2) was found necessary…..”

75. This Court in the case of Union of India and

others vs. Martin Lottery Agencies Ltd.12, in paragraph

38 has relied on the aforesaid observations made in the

judgment of K.P. Varghese (supra). 76. It could thus be seen, that the speech made by

Hon’ble Finance Minister while explaining the amendment

could be referred to for ascertaining what was the reason for

moving the Bill. The speech can be used for finding out:

(1) what were the circumstances in which the

amendment was carried out;

(2) what was the mischief for which the unamended

section did not provide; and

(3) what was sought to be remedied by amended

enactment.

77. It is clear, that the mischief, which was noticed

prior to amendment of Section 31 of I&B Code was, that

though the legislative intent was to extinguish all such

debts owed to the Central Government, any State

Government or any local authority, including the tax

authorities once an approval was granted to the resolution

plan by NCLT; on account of there being some ambiguity,

the State/Central Government authorities continued with

the proceedings in respect of the debts owed to them. In

order to remedy the said mischief, the legislature thought it

appropriate to clarify the position, that once such a

resolution plan was approved by the Adjudicating Authority,

all such claims/dues owed to the State/Central Government

or any local authority including tax authorities, which were

not part of the resolution plan shall stand extinguished. 78. In Justice G.P. Singh treatise on “The principles

of Statutory Interpretation”, 14th Edition, Revised by Justice

A.K. Patnaik, former Judge of this Court, it is observed

thus:

(i) Declaratory Statutes

The presumption against retrospective operation is

not applicable to declaratory statutes. As stated in

CRAIES and approved by the Supreme Court:

“For modern purposes a declaratory Act may be

defined as an Act to remove doubts existing as to

the common law, or the meaning or effect of any

statute. Such Acts are usually held to be

retrospective. The usual reason for passing a

declaratory Act is to set aside what Parliament

deems to have been a judicial error, whether in the

statement of the common law or in the

interpretation of statutes. Usually, if not invariably,

such an Act contains a preamble, and also the word

‘declared’ as well as the word ‘enacted’. ”13 But the

use of the words ‘it is declared’ is not conclusive

that the Act is declaratory for these words may, at

times, be used to introduce new rules of law and

the Act in the latter case will only be amending the

law and will not necessarily be retrospective14. In

determining, therefore, the nature of the Act,

regard must be had to the substance rather than to

the form15. If a new Act is ‘to explain’ an earlier

Act, it would be without object unless construed

retrospective16. An explanatory Act is generally

passed to supply an obvious omission or to clear

up doubts as to the meaning of the previous Act17.

It is well settled that if a statute is curative or

merely declaratory of the previous law

retrospective operation is generally intended18. The

language ‘shall be deemed always to have meant’19

or ‘shall be deemed never to have included’20 is

declaratory, and is in plain terms retrospective. In

13 CRAIES : Statute Law, 7th Edition, p. 58, approved in Central Bank of India v. Their Workmen, AIR 1960 SC 12, p. 27 : (1960) 1 SCR 200. See Jones v. Bennet, (1890) 63 LT 705, p. 708 (LORD COLERIDGE, C.J.); Madras Marine & Co. v. State of Madras, (1986) 3 SCC 552, p. 563 : AIR 1986 SC 1760; Satnam Overseas (Export) v. State of Haryana, AIR 2003 SC 66, p. 84 : (2003) 1 SCC 561.

14 Harding v. Queensland Stamp Commissioners, (1898) AC 769, pp. 775, 776 (PC) 15 Ibid 16 R. V. Dursley (Inhabitants), (1832) 110 ER 168, p. 169 17 Keshavlal Jethalal Shah v. Mohanlal, AIR 1968 SC 1336, p. 1339 : (1968) 3 SCR 623. The question whether an ‘explanation’ added by an amending Act is really explanatory or not would depend on its construction. In S. K. Govindan and Sons v. Commr. Of Income-tax, Cochin, AIR 2001 SC 254 p. 260 : (2001) 1 SCC 460 : (2001) 247 ITR 192, Explanation 2 inserted in section 139(8) of the Income-tax Act, 1961 was held to be clarificatory. But in Birla Cement Works v. The Central Board of Direct Taxes, JT 2001 (3) SC 256, p. 262 : (2001) 9 SCC 35 : AIR 2001 SC 1080, it was held that mere addition of an ‘explanation’ by an amending Act in a taxing Act cannot, without more, be held to be clarificatory and retrospective. In Commissioner of Income-tax Bhopal v. Shelly Products, (2003) 5 SCC 461, pp. 477, 478 : AIR 2003 SC 2532 provisos (a) and (b) added in section 240 of the Income-tax Act, 1961 by amending Act which came into force on 1-4-1989 were held to be clarificatory and retrospective. 18 Channan Singh v. Jai Kuar (Smt.), AIR 1970 SC 349, p. 349, p. 351 : (1969) 2 SCC 19 CIT v. Straw Products, AIR 1966 SC 1113 : 1966 (2) SCR 881 20 Union of India v. S. Muthyam Reddy, JT 1999 (7) SC 596, p. 597 : 1999 (7) SCC 545 : AIR 1994 SC 3881

the absence of clear words indicating that the

amending Act is declaratory, it would not be so

construed when the pre-amended provision was

clear and unambiguous21. An amending Act may be

purely clarificatory to clear a meaning of a

provision of the principal Act which was already

implicit. A clarificatory amendment of this nature

will have retrospective effect and, therefore, if the

principal Act was existing law when the

constitution came into force, the amending Act

also will be part of the existing law22.

The above statement of the law relating to the

nature and effect of a declaratory statute has been

quoted with approval by the Supreme Court from

earlier editions of this book in a number of cases23.

“In Mithilesh Kumari v. Prem Bihari Khare24,

section 4 of the Benami Transactions (Prohibition)

Act, 1988 was, it is submitted, wrongly held to be

an Act declaratory in nature for it was not passed

to clear any doubt existing as to the common law

or the meaning or effect of any statute. The

conclusion, however, that section 4 applied also to

past benami transactions may be supportable on

the language used in the section.” These

observations and criticism of Mithilesh Kumari’s

case also received the approval in R. Rajgopal

Reddy v. Padmini Chandrasekharan25, where the

Supreme Court after quoting them (from 5th

21 Sakuru v. Tanoji, (1985) 3 SCC 590, p. 594 : AIR 1985 SC 1279 22 Punjab Traders v. State of Punjab, AIR 1990 SC 2300, p. 2304 : 1991 (1) SCC 86 23 R. Rajgopal Reddy v. Padmini Chandrasekharan, 1995 (1) Scale 692, p. 704 : AIR 1996 SC 238, p. 246 : (1995) 2 SCC 630; Allied Motors (P. ) Ltd. v. CIT, AIR 1997 SC 1361, pp. 1366, 1367 : 1997 (3) SCC 472; CIT v. Podar Cement Pvt. Ltd., AIR 1997 SC 2523, pp. 2537, 2538 : 1997 (5) SCC 482; Shyam Sunder v. Ram Kumar, AIR 2001 SC 2472, p. 2487 : (2001) 8 SCC 24; Zile Singh v. State of Haryana, (2004) 8 SCC 1, p. 9 : AIR 2004 SC 5100, pp. 5103, 5104; Commissioner of Income Tax I, Ahmedabad v. Gold Coin Health Food Pvt. Ltd., (2008) 9 SCC 622 paras 19, 20 : (2009) 9 JT 312. See further S. B. Bhattacharjee v. S. D. Majumdar, AIR 2007 SC 2102 (paras 26 to 29) : (2007) 7 JT 381. 24 AIR 1989 SC 1247, p. 1255 : 1989 (2) SCC 95 25 1995 (1) Scale 692 : 1995 AIR SCW 1422 : AIR 1996 SC 238

Edition pp. 315, 316) said : “No exception can be

taken to the above observations”.26

A proviso added from 1.4.1988 to section 43 B

inserted in the Income Tax Act, 1961 from

1.4.1984 came up for consideration in Allied

Motors(P.) Ltd. v. Commissioner of Income-tax27

and it was given retrospective effect from the

inception of the section on the reasoning that the

proviso was added to remedy unintended

consequences and supply an obvious omission so

that the section may be given a reasonable

interpretation and that in fact the amendment to

insert the proviso would not serve its object unless

it is construed as retrospective. In Commissioner

of Income-Tax, Bombay v. Podar Cement Pvt. Ltd.,

28the Supreme Court held that amendments

introduced by the Finance Act, 1987 in so far they

related to section 27(iii), (iiia) and (iiib) which

redefined the expression ‘owner of house

property’, in respect of which there was a sharp

divergence of opinion amongst the High Courts,

was clarificatory and declaratory in nature and

consequently retrospective. Similarly, in Brij

Mohan Das Laxman Das v. Commissioner of

Income – tax29. Explanation 2 added to section 40

of the Income-tax Act, 1961 from 1.4.1985 on a

question on which there was a divergence of

opinion was held to be declaratory in nature and,

therefore, retrospective. And in Zile Singh v. State

26 Ibid, p. 704 (Scale) : p. 246 (AIR) 27 AIR 1997 Sc 1361, pp. 1366, 1367 : 1997 (3) SCC 472; Similarly in Commissioner of Income Tax v. Suresh N. Gupta, (2008) 4 SCC 362 paras 38 and 39 : AIR 2008 SC 572, proviso inserted in section 113 of the Income-tax Act with effect from 1-6-2002 was held to be clarificatory and retrospective. Again in Commissioner of Income Tax v. Alom Extensions Ltd., (2010) 1 SCC 489 : (2009) 14 JT 441 deletion of a second proviso and consequent amendment in second proviso to section 43B of Income-tax Act, 1961 by the Finance Act, 2003 was held to be curative and retrospective. 28 AIR 1997 SC 2523, p. 2538 : (1997) 5 SCC 482. 29 AIR 1997 SC 1651, p. 1654 : 1997 (1) SCC 352; Affirmed in Suwalal Anandlal Jain v. Commr. Of Income-tax, AIR 1997 SC 1279 : (1997) 4 SCC 89 and Commissioner of Income-tax Bombay v. Kanji Shivji and co., AIR 2000 SC 774 : (2000) 2 SCC 253. See further cases in note 42, supra.

of Haryana, 30substitution of the word ‘upto’ for

the word ‘after’ in the proviso to section 13A

(added in 1994) in Haryana Municipal Act, 1973

by the Haryana Municipal (Second Amendment)

Act, 1994 was held to be correction of an obvious

drafting error to bring about the text in conformity

with the legislative intent and, therefore,

retrospective. Even without the amendment of the

proviso, the court in all probability would have

read and interpreted the section as corrected by the

amendment31.”

79. In the case of Zile Singh vs. State of Haryana

and others32, this Court had an occasion to consider the

provisions of Section 13-A of the Haryana Municipal Act,

1973, which, prior to amendment, read thus:

“13-A. Disqualification for membership.—

(1) A person shall be disqualified for being

chosen as and for being a member of a mu

nicipality—

***

(c) if he has more than two living chil

dren:

Provided that a person having more than

two children on or after the expiry of one

year of the commencement of this Act, shall

not be deemed to be disqualified.

***”

30 (2004) 8 SCC 1 : AIR 2004 SC 5100 31 Ibid, p. 23 (SCC).

80. The faulty drafting in the provision was capable of

being interpreted, that the legislative embargo imposed on a

person from procreating and giving birth to a third child in

the context of holding the office of a member of a

municipality remained in operation for a period of one year

only and thereafter it was lifted. It could be interpreted, that

on the date on which Section 13-A was brought on the

statute book i.e. dated 5.4.1994, even if a person became

disqualified, the disqualification ceased to operate and he

became qualified once again to contest the election and hold

the office of member of a municipality on the expiry of one

year from 5-4-1994. After realizing the error, Section 13-A

came to be amended as under:

“2. In the proviso to clause (c) of sub-sec

tion (1) of Section 13-A of the Haryana

Municipal Act, 1973 (hereinafter called

the principal Act), for the word ‘after’,

the word ‘upto’ shall be substituted.”

81. This Court while observing, that the amendment

was clarificatory in nature, held thus:

“14. The presumption against retro spective operation is not applicable to declaratory statutes…. In determin ing, therefore, the nature of the Act, regard must be had to the substance rather than to the form. If a new Act is “to explain” an earlier Act, it would be without object unless construed ret rospectively. An explanatory Act is generally passed to supply an obvious omission or to clear up doubts as to the meaning of the previous Act. It is well settled that if a statute is cura tive or merely declaratory of the previ ous law retrospective operation is gen erally intended…. An amending Act may be purely declaratory to clear a meaning of a provision of the princi pal Act which was already implicit. A clarificatory amendment of this nature will have retrospective effect (ibid., pp. 468-69).

15. Though retrospectivity is not to be presumed and rather there is presump tion against retrospectivity, according to Craies (Statute Law, 7th Edn.), it is open for the legislature to enact laws having retrospective operation. This can be achieved by express enactment or by nec essary implication from the language em ployed. If it is a necessary implication from the language employed that the leg islature intended a particular section to have a retrospective operation, the courts

will give it such an operation. In the ab sence of a retrospective operation hav ing been expressly given, the courts may be called upon to construe the provisions and answer the question whether the legislature had suffi ciently expressed that intention giv ing the statute retrospectivity. Four factors are suggested as relevant: (i) general scope and purview of the statute; (ii) the remedy sought to be applied; (iii) the former state of the law; and (iv) what it was the legisla ture contemplated. (p. 388) The rule against retrospectivity does not extend to protect from the effect of a repeal, a privi lege which did not amount to accrued right. (p. 392)

16. Where a statute is passed for the purpose of supplying an obvious omis sion in a former statute or to “ex plain” a former statute, the subse quent statute has relation back to the time when the prior Act was passed. The rule against retrospectivity is in applicable to such legislations as are explanatory and declaratory in na ture. A classic illustration is the case of Attorney General v. Pougett [(1816) 2 Price 381 : 146 ER 130] (Price at p. 392). By a Customs Act of 1873 (53 Geo. 3, c. 33) a duty was imposed upon hides of 9s 4d, but the Act omitted to state that it was to be 9s 4d per cwt., and to remedy

this omission another Customs Act (53 Geo. 3, c. 105) was passed later in the same year. Between the passing of these two Acts some hides were exported, and it was contended that they were not liable to pay the duty of 9s 4d per cwt., but Thomson, C.B., in giving judgment for the Attorney General, said: (ER p. 134)

“The duty in this instance was, in

fact, imposed by the first Act; but the

gross mistake of the omission of the

weight, for which the sum expressed

was to have been payable, occasioned

the amendment made by the subse

quent Act: but that had reference to

the former statute as soon as it

passed, and they must be taken to

gether as if they were one and the

same Act;” (Price at p. 392)

17. Maxwell states in his work on Inter pretation of Statutes (12th Edn.) that the rule against retrospective operation is a presumption only, and as such it “may be overcome, not only by express words in the Act but also by circumstances suffi ciently strong to displace it” (p. 225). If the dominant intention of the legislature can be clearly and doubtlessly spelt out, the inhibition contained in the rule against perpetuity becomes of doubtful applicability as the “inhibition of the rule” is a matter of degree which would “vary secundum materiam” (p. 226). Sometimes, where the sense of the statute demands it or where there has been an obvious mis

take in drafting, a court will be prepared to substitute another word or phrase for that which actually appears in the text of the Act (p. 231).

18. In a recent decision of this Court in National Agricultural Coop. Marketing Federation of India Ltd. v. Union of In dia [(2003) 5 SCC 23] it has been held

that there is no fixed formula for the

expression of legislative intent to give

retrospectivity to an enactment. Every

legislation whether prospective or ret

rospective has to be subjected to the

question of legislative competence. The

retrospectivity is liable to be decided

on a few touchstones such as: (i) the

words used must expressly provide or

clearly imply retrospective operation;

(ii) the retrospectivity must be reason

able and not excessive or harsh, other

wise it runs the risk of being struck

down as unconstitutional; (iii) where

the legislation is introduced to over

come a judicial decision, the power

cannot be used to subvert the decision

without removing the statutory basis of

the decision. There is no fixed formula

for the expression of legislative intent

to give retrospectivity to an enactment.

A validating clause coupled with a sub

stantive statutory change is only one of

the methods to leave actions unsus

tainable under the unamended statute,

undisturbed. Consequently, the ab

sence of a validating clause would not

by itself affect the retrospective opera

tion of the statutory provision, if such

retrospectivity is otherwise apparent.

19. The Constitution Bench in Shyam Sunder v. Ram Kumar [(2001) 8 SCC 24] has held: (SCC p. 49, para 39)

“Ordinarily when an enactment de

clares the previous law, it requires to

be given retroactive effect. The function

of a declaratory statute is to supply an

omission or to explain a previous

statute and when such an Act is

passed, it comes into effect when the

previous enactment was passed. The

legislative power to enact law includes

the power to declare what was the pre

vious law and when such a declaratory

Act is passed, invariably it has been

held to be retrospective. Mere absence

of use of the word ‘declaration’ in an

Act explaining what was the law before

may not appear to be a declaratory Act

but if the court finds an Act as

declaratory or explanatory, it has to be

construed as retrospective.” (p. 2487).

20. In Bengal Immunity Co. Ltd. v. State of Bihar [(1955) 2 SCR 603 : AIR 1955 SC 661] , Heydon case [(1584) 3 Co Rep 7a : 76 ER 637] was cited with approval. Their Lordships have said: (SCR pp. 632-33)

“It is a sound rule of construction of

a statute firmly established in England

as far back as 1584 when Heydon

case [(1584) 3 Co Rep 7a : 76 ER 637]

was decided that—

‘… for the sure and true interpre

tation of all statutes in general (be

they penal or beneficial, restrictive

or enlarging of the common law)

four things are to be discerned and

considered—

1st. What was the common law

before the making of the Act.

2nd. What was the mischief

and defect for which the common

law did not provide.

3rd. What remedy Parliament

hath resolved and appointed to

cure the disease of the Common

wealth, and

4th. The true reason of the

remedy; and then the office of all

the judges is always to make

such construction as shall sup

press the mischief, and advance

the remedy, and to suppress sub

tle inventions and evasions for

continuance of the mischief,

and pro privato commodo, and to

add force and life to the cure and

remedy, according to the true in

tent of the makers of the Act, pro

bono publico.’ ”

21. In Allied Motors (P) Ltd. v. CIT [(1997) 3 SCC 472] certain unintended conse quences flowed from a provision enacted by Parliament. There was an obvious

omission. In order to cure the defect, a proviso was sought to be introduced through an amendment. The Court held that literal construction was liable to be avoided if it defeated the manifest object and purpose of the Act. The rule of rea sonable interpretation should apply.

“A proviso which is inserted to rem

edy unintended consequences and to

make the provision workable, a proviso

which supplies an obvious omission in

the section and is required to be read

into the section to give the section a

reasonable interpretation, requires to

be treated as retrospective in operation

so that a reasonable interpretation can

be given to the section as a whole.”

(SCC pp. 479-80, para 13)

22. The State Legislature of Haryana in tended to impose a disqualification with effect from 5-4-1995 and that was done. Any person having more than two liv ing children was disqualified on and from that day for being a member of a municipality. However, while enacting a proviso by way of an exception carv ing out a fact situation from the oper ation of the newly introduced disqual ification the draftsman's folly caused the creation of trouble. A simplistic reading of the text of the proviso spelled out a consequence which the legislature had never intended and could not have intended. It is true

that the Second Amendment does not

expressly give the amendment a retro

spective operation. The absence of a

provision expressly giving a retrospec

tive operation to the legislation is not

determinative of its prospectivity or

retrospectivity. Intrinsic evidence may

be available to show that the amend

ment was necessarily intended to

have retrospective effect and if the

Court can unhesitatingly conclude in

favour of retrospectivity, the Court

would not hesitate in giving the Act

that operation unless prevented from

doing so by any mandate contained in

law or an established principle of in

terpretation of statutes.” 82. It could thus be seen, that what is material is, to

ascertain the legislative intent. If legislature by an

amendment supplies an obvious omission in a former

statute or explains a former statute, the subsequent statute

has a relation back to the time when the prior Act was

passed. 83. The law laid down in Zile Singh (supra) has been

subsequently followed in various judgments of this Court,

including in the case of Commissioner of Income Tax I,

Ahmedabad vs. Gold Coin Health Food Private Limited33

(three Judges’ Bench). 84. This Court recently in the case of State Bank of

India vs. V. Ramakrishnan and another34, had an

occasion to consider the question, as to whether the

amendment to sub-section (3) of Section 14 of I&B Code by

Amendment Act 26 of 2018 was clarificatory in nature or

not. By the said amendment, sub-section (3) of Section 14

of I&B Code was substituted to provide, that the provisions

of sub-section (1) of Section 14 shall not apply to a surety in

a contract of guarantee for Corporate Debtor. Considering

the said issue, this Court observed thus:

“30. We now come to the argument that

the amendment of 2018, which makes it

clear that Section 14(3), is now substituted

to read that the provisions of sub-section

(1) of Section 14 shall not apply to a surety

in a contract of guarantee for corporate

debtor. The amended section reads as fol

lows:

“14. Moratorium.—(1)-(2) *

* *

(3) The provisions of sub-section (1)

shall not apply to—

33(2008) 9 SCC 622

(a) such transactions as may be noti

fied by the Central Government in con

sultation with any financial sector regu

lator;

(b) a surety in a contract of guarantee

to a corporate debtor.”

31. The Insolvency Law Committee, ap pointed by the Ministry of Corporate Af fairs, by its Report dated 26-3-2018, made certain key recommendations, one of which was:

“(iv) to clear the confusion regarding

treatment of assets of guarantors of the

corporate debtor vis-à-vis the morato

rium on the assets of the corporate

debtor, it has been recommended to clar

ify by way of an explanation that all as

sets of such guarantors to the corporate

debtor shall be outside scope of morato

rium imposed under the Code;”

32. The Committee insofar as the mora torium under Section 14 is concerned, went on to find:

“5.5. Section 14 provides for a mora

torium or a stay on institution or con

tinuation of proceeding, suits, etc.

against the corporate debtor and its as

sets. There have been contradicting

views on the scope of moratorium re

garding its application to third parties

affected by the debt of the corporate

debtor, like guarantors or sureties.

While some courts have taken the view that Section 14 may be interpreted liter ally to mean that it only restricts actions against the assets of the corporate debtor, a few others have taken an in terpretation that the stay applies on en forcement of guarantee as well, if a CIRP is going on against the corporate debtor.”

***

“5.7. The Allahabad High Court sub sequently took a differing view in San jeev Shriya v. SBI [Sanjeev Shriya v. SBI, 2017 SCC OnLine All 2717 : (2018) 2 All LJ 769 : (2017) 9 ADJ 723] , by applying moratorium to enforcement of guarantee against personal guarantor to the debt. The rationale being that if a CIRP is go ing on against the corporate debtor, then the debt owed by the corporate debtor is not final till the resolution plan is approved, and thus the liability of the surety would also be unclear. The Court took the view that until debt of the cor porate debtor is crystallised, the guar antor's liability may not be triggered. The Committee deliberated and noted that this would mean that surety's lia bilities are put on hold if a CIRP is going on against the corporate debtor, and such an interpretation may lead to the contracts of guarantee being infructu ous, and not serving the purpose for which they have been entered into.

5.8. In SBI v. V. Ramakrish nan [SBI v. V. Ramakrishnan, 2018 SCC

OnLine Nclat 384] , NCLAT took a broad interpretation of Section 14 and held that it would bar proceedings or actions against sureties. While doing so, it did not refer to any of the above judgments but instead held that proceedings against guarantors would affect the CIRP and may thus be barred by mora torium. The Committee felt that such a broad interpretation of the moratorium may curtail significant rights of the creditor which are intrinsic to a contract of guarantee.

5.9. A contract of guarantee is be tween the creditor, the principal debtor and the surety, whereunder the creditor has a remedy in relation to his debt against both the principal debtor and the surety (National Project Construction Corpn. Ltd. v. Sadhu and Co. [National Project Construction Corpn. Ltd. v. Sadhu and Co., 1989 SCC OnLine P&H 1069 : AIR 1990 P&H 300] ). The surety here may be a corporate or a natural person and the liability of such person goes as far the liability of the principal debtor. As per Section 128 of the Contract Act, 1872, the liability of the surety is co-ex tensive with that of the principal debtor and the creditor may go against either the principal debtor, or the surety, or both, in no particular sequence (Chokalinga Chettiar v. Dandayuthapani Chettiar [Chokalinga Chettiar v. Dan dayuthapani Chettiar, 1928 SCC OnLine Mad 236 : AIR 1928 Mad 1262] ).

Though this may be limited by the terms of the contract of guarantee, the general principle of such contracts is that the li ability of the principal debtor and the surety is co-extensive and is joint and several (Bank of Bihar Ltd. v. Damodar Prasad [Bank of Bihar Ltd. v. Damodar Prasad, AIR 1969 SC 297] ). The Com mittee noted that this characteristic of such contracts i.e. of having remedy against both the surety and the corpo rate debtor, without the obligation to ex haust the remedy against one of the parties before proceeding against the other, is of utmost importance for the creditor and is the hallmark of a guar antee contract, and the availability of such remedy is in most cases the basis on which the loan may have been ex tended.

5.10. The Committee further noted that a literal interpretation of Section 14 is prudent, and a broader interpre tation may not be necessary in the above context. The assets of the surety are separate from those of the corpo rate debtor, and proceedings against the corporate debtor may not be seri ously impacted by the actions against assets of third parties like sureties. Ad ditionally, enforcement of guarantee may not have a significant impact on the debt of the corporate debtor as the right of the creditor against the princi pal debtor is merely shifted to the surety, to the extent of payment by the

surety. Thus, contractual principles of

guarantee require being respected even

during a moratorium and an alternate

interpretation may not have been the

intention of the Code, as is clear from

a plain reading of Section 14.

5.11. Further, since many guarantees

for loans of corporates are given by its

promoters in the form of personal guar

antees, if there is a stay on actions

against their assets during a CIRP, such

promoters (who are also corporate appli

cants) may file frivolous applications to

merely take advantage of the stay and

guard their assets. In the judgments an

alysed in this relation, many have been

filed by the corporate applicant under

Section 10 of the Code and this may

corroborate the above apprehension of

abuse of the moratorium provision. The

Committee concluded that Section 14

does not intend to bar actions against

assets of guarantors to the debts of the

corporate debtor and recommended that

an explanation to clarify this may be in

serted in Section 14 of the Code. The

scope of the moratorium may be re

stricted to the assets of the corporate

debtor only.”

33. The Report of the said Committee makes it clear that the object of the amendment was to clarify and set at rest what the Committee thought was an over broad interpretation of Section 14. That such clarificatory amendment is retrospec

tive in nature, would be clear from the fol

lowing judgments”

85. In the case of B.K. Educational Services

Private Limited vs. Parag Gupta and Associates (supra),

this Court considered the question, as to whether the 2018

amendment which inserted Section 238A to the I&B Code

was clarificatory in nature or not. After considering various

earlier judgments of this Court, this Court observed thus:

“26. In the present case also, it is clear

that the amendment of Section 238-A

would not serve its object unless it is con

strued as being retrospective, as other

wise, applications seeking to resurrect

time-barred claims would have to be al

lowed, not being governed by the law of

limitation.

27. We may also refer to a recent decision

of this Court in SBI v. V. Ramakrish

nan [SBI v. V. Ramakrishnan, (2018) 17

SCC 394] , where this Court, after refer

ring to the selfsame Insolvency Law Com

mittee Report, held that the amendment

made to Section 14 of the Code, in which

the moratorium prescribed by Section 14

was held not to apply to guarantors, was

held to be clarificatory, and therefore, ret

rospective in nature, the object being that

an overbroad interpretation of Section 14

ought to be set at rest by clarifying that

this was never the intention of Section 14

from the very inception.

86. As discussed hereinabove, one of the principal

objects of I&B Code is, providing for revival of the Corporate

Debtor and to make it a going concern. I&B Code is a

complete Code in itself. Upon admission of petition under

Section 7, there are various important duties and functions

entrusted to RP and CoC. RP is required to issue a

publication inviting claims from all the stakeholders. He is

required to collate the said information and submit

necessary details in the information memorandum. The

resolution applicants submit their plans on the basis of the

details provided in the information memorandum. The

resolution plans undergo deep scrutiny by RP as well as

CoC. In the negotiations that may be held between CoC and

the resolution applicant, various modifications may be made

so as to ensure, that while paying part of the dues of

financial creditors as well as operational creditors and other

stakeholders, the Corporate Debtor is revived and is made

an on-going concern. After CoC approves the plan, the

Adjudicating Authority is required to arrive at a subjective

satisfaction, that the plan conforms to the requirements as

are provided in sub-section (2) of Section 30 of the I&B

Code. Only thereafter, the Adjudicating Authority can grant

its approval to the plan. It is at this stage, that the plan

becomes binding on Corporate Debtor, its employees,

members, creditors, guarantors and other stakeholders

involved in the resolution Plan. The legislative intent

behind this is, to freeze all the claims so that the resolution

applicant starts on a clean slate and is not flung with any

surprise claims. If that is permitted, the very calculations

on the basis of which the resolution applicant submits its

plans, would go haywire and the plan would be unworkable. 87. We have no hesitation to say, that the word

“other stakeholders” would squarely cover the Central

Government, any State Government or any local authorities.

The legislature, noticing that on account of obvious

omission, certain tax authorities were not abiding by the

mandate of I&B Code and continuing with the proceedings,

has brought out the 2019 amendment so as to cure the said

mischief. We therefore hold, that the 2019 amendment is

declaratory and clarificatory in nature and therefore

retrospective in operation. 88. There is another reason, which persuades us to

take the said view. Sub-section (10) of Section 3 of the I&B

Code defines “creditor” thus:

“(10) “creditor” means any person to

whom a debt is owed and includes a

financial creditor, an operational creditor,

a secured creditor, an unsecured creditor

and a decree-holder;”

89. Sub-sections (20) and (21) of Section 5 of the I&B

Code define “operational creditor” and “operational debt”

respectively as such:

(20) “operational creditor” means a per

son to whom an operational debt is

owed and includes any person to

whom such debt has been legally as

signed or transferred;

(21) “operational debt” means a claim in

respect of the provision of goods or ser

vices including employment or a debt

in respect of the payment of dues aris

ing under any law for the time being in

force and payable to the Central Gov

ernment, any State Government or any

local authority;

90. “Creditor” therefore has been defined to mean

‘any person to whom a debt is owed and includes a financial

creditor, an operational creditor, a secured creditor, an

unsecured creditor and a decree-holder’.

“Operational creditor” has been defined to mean a

person to whom an operational debt is owed and includes

any person to whom such debt has been legally assigned or

transferred.

“Operational debt” has been defined to mean a

claim in respect of the provision of goods or services

including employment or a debt in respect of the payment of

dues arising under any law for the time being in force and

payable to the Central Government, any State Government

or any local authority. 91. It is a cardinal principle of law, that a statute has

to be read as a whole. Harmonious construction of sub

section (10) of Section 3 of the I&B Code read with sub

sections (20) and (21) of Section 5 thereof would reveal, that

even a claim in respect of dues arising under any law for the

time being in force and payable to the Central Government,

any State Government or any local authority would come

within the ambit of ‘operational debt’. The Central

Government, any State Government or any local authority

to whom an operational debt is owed would come within the

ambit of ‘operational creditor’ as defined under sub-section

(20) of Section 5 of the I&B Code. Consequently, a person

to whom a debt is owed would be covered by the definition

of ‘creditor’ as defined under sub-section (10) of Section 3 of

the I&B Code. As such, even without the 2019 amendment,

the Central Government, any State Government or any local

authority to whom a debt is owed, including the statutory

dues, would be covered by the term ‘creditor’ and in any

case, by the term ‘other stakeholders’ as provided in sub

section (1) of Section 31 of the I&B Code. 92. The Division Bench of the Rajasthan High Court

in D.B. Civil Writ Petition No.9480 of 2019 in the case of

Ultra Tech Nathdwara Cement Ltd. vs. Union of India &

Ors., by judgment and order dated 7.4.2020 has taken a

view, that the demand notices, issued by the Central Goods

and Service Tax Department, for a period prior to the date

on which NCLT has granted its approval to the resolution

plan, are not permissible in law. While doing so, the

Rajasthan High Court has relied on the judgment of this

Court in the case of Committee of Creditors of Essar

Steel India Limited through Authorised Signatory

(supra). 93. The Calcutta High Court in the case of Akshay

Jhunjhunwala & Anr. vs. Union of India through the

Ministry of Corporate Affairs & Ors.35 has also taken a

view, that the claim of operational creditor will also include

a claim of a statutory authority on account of money

receivable pursuant to an imposition by a statute. We are

in agreement with the views taken by these Courts. 94. Therefore, in our considered view, the aforesaid

provisions leave no manner of doubt to hold, that the 2019

amendment is declaratory and clarificatory in nature. We

also hold, that even if 2019 amendment was not effected,

still in light of the view taken by us, the Central

Government, any State Government or any local authority

35 2018 SCC OnLine Cal. 142

would be bound by the resolution plan, once it is approved

by the Adjudicating Authority (i.e. NCLT).

CONCLUSION 95. In the result, we answer the questions framed by

us as under:

(i) That once a resolution plan is duly approved

by the Adjudicating Authority under sub

section (1) of Section 31, the claims as

provided in the resolution plan shall stand

frozen and will be binding on the Corporate

Debtor and its employees, members,

creditors, including the Central

Government, any State Government or any

local authority, guarantors and other

stakeholders. On the date of approval of

resolution plan by the Adjudicating

Authority, all such claims, which are not a

part of resolution plan, shall stand

extinguished and no person will be entitled

to initiate or continue any proceedings in

respect to a claim, which is not part of the

resolution plan;

(ii) 2019 amendment to Section 31 of the I&B

Code is clarificatory and declaratory in

nature and therefore will be effective from

the date on which I&B Code has come into

effect;

(iii) Consequently 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 its approval

under Section 31 could be continued. 96. In the light of what has been held by us

hereinabove, we now proceed to decide individual matters. CIVIL APPEAL NO.8129 OF 2019 97. In the said appeal, admittedly, the Company

Petition filed by the SBI under Section 7 of I&B Code in

respect of OMML/Corporate Debtor came to be admitted on

3.8.2017. Correspondingly, order of moratorium and

appointment of IRP also came to be passed on the said date.

By a public notice, RP invited claims from the creditors. The

last date for submission of such claims was 18.8.2017. RP

also invited EOI as well as resolution plans. In response to

the said invitation, both GMSPL and EARC had submitted

their resolution plans. In the 8th meeting of CoC held on

14.3.2018, the resolution plan submitted by EARC was

found to be most competitive and as such, it was declared

as H1 bidder. However, during negotiation, the resolution

plan of EARC was not found to be satisfactory by CoC and

as such, in the 9th meeting of CoC held on 31.3.2018,

resolution plan of EARC came to be rejected. 98. Thereafter, since GMSPL was H2 bidder,

negotiations were held with it. However, the resolution plan

submitted by GMSPL was also not found to be satisfactory

and therefore in the 10th meeting of CoC held on 3.4.2018, it

was decided to annul the existing proceedings and initiate a

fresh process for invitation for submission of resolution

plan. This was restricted only to such entities, which had

submitted their EOI for submission of resolution plan. In

response to the fresh invitation for submission of resolution

plan, three bidders, namely, GMSPL, EARC and SIFL

submitted their resolution plans. In the 11th meeting of CoC

held on 13.4.2018, the resolution plan submitted by GMSPL

was found to be most competitive and as such, CoC

declared it as H1 bidder. After holding several rounds of

negotiations, in the 12th meeting of CoC held on 21.4.2018,

CoC unanimously decided to convene a meeting of the CoC

on 25.4.2018 for voting on the resolution plan proposed by

GMSPL. In the meeting of the CoC held on 25.4.2018, CoC

being satisfied that the resolution plan submitted by GMSPL

meets all the requirements under sub-section (2) of Section

30 of I&B Code, placed the same for voting. The said

resolution plan of GMSPL was approved by more than

89.23% of voting share of financial creditors of the

Corporate Debtor. Accordingly, an application being CA (IB)

No.402/KB/2018 came to be filed by RP for grant of

approval to the resolution plan submitted by GMSPL before

the NCLT. EARC filed application being CA (IB)

No.398/KB/2018, challenging the approval granted by CoC

to the resolution plan submitted by GMSPL. It also filed CA

(IB) No. 470/KB/2018, challenging the decision of RP in not

admitting its claim. One Application being CA(IB)

No.509/KB/2018 came to be filed by the District Mining

Officer, Department of Mining and Geology, Jharkhand

challenging the non-admission of its claim to the tune of

Rs.93,51,91,724/- and Rs.760.51 crores. 99. By common order dated 22.6.2018, application

being CA(IB) No.402/KB/2018 filed by RP, came to be

allowed thereby, granting approval under the provisions of

Section 31(1) of the I&B Code and declaring that the same

will be binding on the Corporate Debtor, its employees,

members, creditors, guarantors and other stakeholders

involved in the resolution Plan. Application being CA (IB)

No.398/KB/2018 filed by EARC challenging the approval

granted by CoC to the resolution plan submitted by GMSPL

was dismissed. Vide same order dated 22.6.2018,

application being CA (IB) No.470/KB/2018 filed by EARC

challenging the decision of the RP in not admitting its claim

and application being CA(IB) No.509/KB/2018 filed by the

District Mining Officer, Department of Mining and Geology,

Jharkhand challenging the non-admission of its claim were

also dismissed with cost of Rs.1,00,000/- each. 100. While allowing the application filed by RP,

granting approval to the resolution plan of GMSPL (i.e. CA

No.402/KB/2018) and rejecting the application of EARC

challenging the grant of approval to the resolution plan of

GMSPL by CoC (i.e. CA No.398/KB/2018), NCLT found, that

RP had followed the entire procedure as required under the

I&B Code and the Regulations. It also found, that CoC after

applying its mind found, that the resolution plan submitted

by GMSPL was in conformity with the requirements under

Section 30(2) of the I&B Code. 101. Insofar as the application filed by EARC with

regard to non-admission of its claim submitted to RP is

concerned, NCLT found, that the Corporate Debtor had

executed guarantee securing loan received by APNRL, which

had been given by India Infrastructure Finance Company

Limited (“IIFCL” for short). The corporate guarantee

executed by the Corporate Debtor was in favour of IIFCL.

The Corporate Debtor also owned share in APNRL, which

was pledged with IIFCL to secure the loan given by IIFCL to

APNRL. IIFCL assigned its rights to EARC. EARC being the

assignee of the aforesaid submitted its claims to the RP. 102. NCLT found, that by email dated 6.1.2018, EARC

had submitted its claim in Form ‘C’ for an amount of

Rs.648,89,62,395/-. In response to the said email, RP

sought a clarification, as to whether the corporate guarantee

had been invoked by the applicant. RP had not received any

response till 21.2.2018 from EARC. Despite repeated

requests made by RP, EARC did not respond to the query

made by RP. From the record placed before NCLT, it was

clear, that EARC had not invoked the corporate guarantee.

NCLT therefore posed a question to itself, as to whether an

uninvoked corporate guarantee could be considered as

matured claim of the applicant. NCLT found, that once the

moratorium was applied under Section 14 of I&B Code,

EARC was prevented from invoking the corporate guarantee.

NCLT further found, that the OMML’s guarantee had not

been invoked by EARC till the date of completion of CIRP

process and once the moratorium was imposed, it could not

invoke the corporate guarantee. NCLT therefore found, that

there is no illegality or irregularity in not admitting the

claim of EARC. 103. NCLT found, that the entire information was

uploaded in the virtual data room to which EARC had

access since it was also one of the resolution applicants.

NCLT found, that the information with regard to claim of all

financial creditors inclusive of EARC’s claim was available in

the virtual data room. The record also revealed, that the

claim of EARC was not admitted for the reason that the

corporate guarantee in question was uninvoked as on date. 104. Insofar as the second objection of EARC with

regard to the shares owned by the Corporate Debtor in

APNRL, which were pledged with IIFCL to secure the loan

given by IIFCL to APNRL and which were assigned to EARC

being invoked on 30.4.2018 is concerned, NCLT found the

same claim also to be without merit. NCLT found, that on

30.4.2018, the moratorium was in force and therefore

invocation of pledge by EARC on 30.4.2018 was not

permissible in law. It was further found, that RP had rightly

not admitted the said claim. 105. It was sought to be argued on behalf of EARC,

that CIRP process was complete on 29.4.2018 and

therefore, invocation of pledge by EARC on 30.4.2018 was

legal and valid. However, NCLT found, that unless the

application filed by RP under Section 31(1) for approval of

the plan was decided and an order either approving or

rejecting the resolution plan was passed, the moratorium

declared under Section 14 would continue to have force.

As such, invocation of pledge on 30.4.2018 was held to be

not permissible in law. It would be relevant to refer to the

observations made by NCLT with regard to conduct of

EARC.

“It appears to us that it is a deliberate

attempt to stage mange an objection

against the approval of a resolution plan

other than the plan submitted by the

resolution applicant. We also found that

CA 398 of 2018 filed for rejection of the

resolution plan is liable to be dismissed

since the very same applicant not at all

succeeds in proving its contention and

that the applicant approaches the Bench

without any clean hand. Instances of

challenging resolution plan by

unsuccessful resolution applicant is at

the increase. Filing like petition is also

one among the reason for the delay in

approving the resolution plan passed by

the CoC in compliance of the provisions

of the Code. This is a unique case in

which the applicant herein filed the

application without any valid grounds.

Dismissing like petition without cost may

encourage the applicant like the

applicant to file like petition. It would

also amount to allowing the applicant to

abuse the process of the Tribunal as well

as deliberately delaying the completion of

CIRP process. Accordingly, we hold that

this application is liable to be dismissed

with costs of Rs.1,00,000/-. Awarding

cost of Rs.1,00,000/- in the peculiar

nature and circumstances of the case in

hand is found reasonable.”

106. Insofar as application being CA No.509/KB/2018

filed by the District Mining Officer is concerned, NCLT

found, that RP had sought clarification from the said

applicant with regard to its claim made in Form ‘B’ since the

information supplied therein was found to be inadequate. It

was found, that in spite of the said request, the District

Mining Officer had failed to place on record any supportive

document or affidavit as required under the Regulations.

NCLT found no merit in the contentions raised on behalf of

the District Mining Officer with regard to the claim on the

basis of Section 25 of the Mines and Mineral (Development

and Regulation) Amendment Act, 1972. It was found, that

in view of the provisions of Section 238 of I&B Code, the

provisions of I&B Code have an overriding effect over any

other law. 107. It was therefore found, that no error was

committed by RP in not admitting the claim of the District

Mining Officer since it was not supported by any document

or affidavit. NCLT therefore rejected the said application

with cost of Rs.1,00,000/-. 108. The order dated 22.6.2018 passed by NCLT was

challenged by way of four appeals before NCLAT; two

appeals being Company Appeal (AT) (Insolvency) Nos.437

and 444 of 2018 filed by EARC; one appeal being Company

Appeal (AT) (Insolvency) No. 438 of 2018 filed by one Deepak

Singh and one appeal being Company Appeal (AT)

(Insolvency) No. 500 of 2018 filed by Sundargarh Mines &

Transport Workers Union.

109. Vide the impugned judgment and order dated

23.4.2019, NCLAT found, that as no ground was made out

in terms of Section 61(3) of I&B Code, no relief could be

granted in the appeals. However, while doing so, NCLAT

observed thus:

“28. However, we make it clear that the

rejection of the claim for the purpose of

collating the claim and making it part of

the ‘Resolution Plan’ will not affect the

right of the Appellant- ‘Edelweiss Asset

Reconstruction Limited’ to invoke the

Bank Guarantee against the ‘Corporate

Debtor’ in case the ‘Principal Borrower’

failed to pay the debt amount, the

‘Moratorium’ period having come to an

end.

42. From the aforesaid provisions, it is

clear that after period of Moratorium it is

open to the person to move before a Civil

Court or to move an application before

the Court of Competent Jurisdiction

against the ‘Corporate Debtor’.

43. In the present case, since it is not

possible either for the Adjudicating

Authority or for this Appellate Tribunal to

give any specific finding, we are of the

view that the Appellant may move before

the Civil Court or Court of Competent

Jurisdiction and may file an application

before the Labour Court for appropriate

relief in favour of the concerned workmen

or against the ‘Corporate Debtor’ if they

have actually worked and have not been

taken care in the ‘Resolution Plan’ due to

lack of knowledge and non-filing of the

claim within time.

51. In the present case, as no ground has

been made out in terms of sub-section (3)

of Section 61 of the ‘I&B Code’ and the

decision of the ‘Resolution Professional’

was not challenged by the Appellant, no

relief can be granted. However, this order

will not come in the way of the Appellant

to move before appropriate forum for

appropriate relief if the claim is not

barred by limitation.

52. In so far dues of State of Jharkhand

is concerned, we hold that the statutory

dues shall be payable to the State of

Jharkhand in terms of existing law which

comes within the meaning of ‘operational

debt’ as defined in Section 5(20) read with

Section 5(21) and held in “Pr. Director

Company Appeal (AT) (Insolvency) Nos.

437, 438, 444 & 500 of 2018 General of

Income Tax (Admn. & TPS) Vs. M/s.

Spartek Ceramics India Ltd. & Anr.

Company Appeal (AT) (Insolvency) No.

160 of 2017”.

Except the aforesaid observations,

in absence of any appeal filed by the

State of Jharkhand, no order is passed.”

110. We find, that the aforesaid observations are

beyond the scope of the powers available with NCLAT under