Resolution Professional not authorised to exercise powers of GST authorities

NCLAT, Chennai: Resolution Professional not authorised to exercise powers of GST authorities under the exercise of its powers under regulation 14 of CIRP regulations.

Bijoy Prabhakaran Pulipra vs. State Tax Officer; National Company Law Tribunal, Chennai; Company Appeal (AT)(CH)(Insolvency) No. 42 of 2021; 07.10.2021

Facts:

• An Application for the Corporate Insolvency Resolution Process was filed by Dr N P Kamlesh and M/s OCS Group (India) PRIVATE LIMITED against PVS Memorial Hospital Private Limited (“Corporate Debtor”) under Section 9 of the IBC, 2016 read with Rule 6 of the IBBI (Application to Adjudicating Authority) Rules, 2016 was admitted by NCLT, Kochi Bench, vide Order dated 16.10.2019.
• The Appellant was appointed as the Interim Resolution Professional (“IRP”), who was later confirmed as Resolution Professional (RP) based on the Resolution passed by the Committee of Creditors in its 1st Meeting held on 17.12.2019.
• The Respondent had submitted its claim in ‘Form B’ under Regulation 7 of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016. However, during CIRP, the RP had revised the admitted claim amount of the Respondent after due verification of the GST claim with the books of accounts of the Corporate Debtor and the electronic register maintained by the Respondent, in accordance with Regulation 14 of CIRP regulation and had sent detailed information on the revision of the admitted claim to the Respondent on 10.08.2020.
• Being aggrieved by the action of RP, the Respondent’ State Tax Officer (Works Contract)’ filed an application Adjudicating Authority under Section 60(5) of the IBC to allow the claim amount submitted by the Respondent in full.
• The Adjudicating Authority vide its Order dated 04.11.2020 had directed the Appellant to file an appeal before the Joint Commissioner, State Sales Tax Department for a reassessment of the GST amount payable, based on the audited financial statements for the Financial Year 2018–19 and the Notification issued by the government of India dated 28.06.2017 within two weeks from the date of the Order.
• The RP stated that after receiving proper and validated information from the promoters of the Corporate Debtor, the COC, in a meeting held on 15 July 2020, directed the RP to explore other possibilities to re-verify the claim amount.
• After that, with the permission of the COC at its 23rd Meeting held on 12.11.2020, the Appellant had filed Miscellaneous Application before the NCLT, Kochi bench to issue necessary clarification to the Appellant in respect to the filing of the Appeal before the Joint Commissioner, SGST Department as directed by the NCLT vide its Order dated 4.11.2020.
• On the said clarification petition, the NCLT vide the impugned Order dated 28.01.2021 had directed that there is no error in its earlier Order to be clarified by the Tribunal and had also ordered that the third prayer about clarification of the pre-deposit of ₹3,79, 64, 304/– mandated under section 107 of the GST Act for preferring the Appeal, need not be considered at present.
• The said order is under challenge in the present appeal.

Observations and Findings:

• It was pertinently observed that all the assessment orders were passed before the declaration of Moratorium. Therefore, it has attained finality in the absence of any challenge against the assessment orders before the Appellate Authority as provided under the statutes.
• Further, the GST amount is an amount of tax levied under the assessment order as per the Goods and Service Act, 2017. It cannot be edited or reduced by the Resolution Professional himself. Even if the IRP/Resolution Professional was aggrieved by the said Order, they should have filed the Appeal under Section 107 of the CGST/SGST Act, 2017, read with Rule 108 of the GST Rules 2017.
• The bench considered an important question which is the scope of revision by the Resolution Professional in the exercise of powers conferred under Regulation 14 of the CIRP regulations. Under regulation 14(2), IRP/RP is empowered to revise the amounts of claim admitted, including the estimates of the claims made under sub-regulation (1) when you come across additional information warranting such revision. However, in the present case, Undisputedly, the IRP/RP has revised the admitted claim of the Respondent based on the circumstances stated above.
• The exercise of revision of the GST assessment order was beyond the jurisdiction of the IRP/RP. It is pertinent to mention that the IRP/RP was not having the adjudicatory power given by the GST Act. Regulation 14 of the CIRP Regulations only authorises the IRP/RP to exercise power where the claim is not precise due to any contingency or other reasons.
• Pertinently Hon’ble Supreme Court in Embassy Property Developers Private Limited1 has held that Section 60 (5)(c) of the Insolvency and Bankruptcy Code, 2016 is very broad in its sweep, in that it speaks about any question of law or fact, arising out of or in relation to Insolvency Resolution. But the decision taken by the Government or Statutory Authority in relation to the matter which is in the realm of public law, cannot be brought within the fold of the phrase “arising out of or in relation to the Insolvency Resolution” appearing in Section 60 (5) (c) of the Code.
• However, in the instant case, the Adjudicating Authority has rightly considered the statutory provision and suggested filing an Appeal before the appropriate forum. But at the same time, the Resolution professionals, considering the CoC as an authority in law, had exercised the powers of GST authorities. Therefore, the said act of the Resolution Professional is without jurisdiction and not sustainable in law.
• Section 28 of IBC makes the provision for approval of the Committee of creditors for certain actions in the CIRP. The Committee of creditors is empowered to exercise its commercial wisdom in the Corporate Insolvency Resolution Process. But under the exercise of commercial wisdom, it cannot exercise judicial power. It has no role in the acceptance or rejection of the claim. Acceptance or rejection of a claim is under the duties of IRP/Resolution Professional, and the aggrieved party can agitate the same before the Adjudicating Authority. For this reason, the Committee of Creditors has also recommended filing an Appeal before the appropriate forum.

Held:

In the circumstances stated above, we consider that the Resolution professional committed an error in exercising their power and exercised the powers of GST Authorities under the pretext of Regulation 14 of the Code, which is not sustainable.