Statutory Dues under CIRP
1. Government as “Operational Creditor”
As per Section 5(20) of Insolvency and Bankruptcy Code, 2016, "operational creditor" means a person to whom an operational debt is owed and includes any person to whom such debt has been legally assigned or transferred;
Section 5(21) clearly specifies "operational debt" means a claim in respect of the provision of goods or services including employment or a debt in respect of the repayment 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;
The statutory authorities to the extent of their receivables from corporate debtor arising under any law fall under the category of “Operational Creditor”.
However, we should note that the Insolvency Law Committee in Report of March, 2018, excluded the regulatory dues from the definition of operational creditor, with a view that regulators generally have wide ranging powers to enforce their orders and recover dues.
2. CIRP initiation by “Government”
Any operational creditor whose dues, exceeding Rs.1,00,000/- are defaulted by the corporate debtor, can corporate insolvency resolution process (CIRP) against such debtor. As an operational creditor, Government is granted with significant right to initiate CIRP under section 9 of IBC.
Bombay Stock Exchange Limited, has already filed proceedings against the Seven defaulting companies before the Hon’ble National Company Law Tribunal, Mumbai on account of their failure to pay its annual listing fees over a period of time
3. Submission of claims
Pursuant to Regulation 7 of CIRP regulations, Government on claiming to be an operational creditor, shall submit proof of claim to the interim resolution professional in person, by post or by electronic means in Form B of the Schedule to the regulations.
It can claim for its outstanding dues by submitting the proof of existence of debt.
4. Its position under water fall mechanism
Under water fall mechanism of section 53 of IBC, any amount which is due (in respect of part or whole of the period of two years preceding the liquidation commencement date) to the Government, shall fall under fifth position of the priority order along with debts owed to a secured creditor for any amount unpaid following the enforcement of security interest.
5. Mandatory provision in Resolution Plan:
As per Section 30(2)(b) of IBC, read with Reg.38 of CIRP Regulations, the Resolution Plan shall identify specific sources of funds that will be used to pay the liquidation value due to operational creditors and provide for such payment in priority to any financial creditor which shall in any event be made before the expiry of thirty days after the approval of a resolution plan by the Adjudicating Authority (AA);
Hence, there shall be clear mention in the Resolution Plan with respect to statutory dues outstanding to Government, its liquidation value, mode and source of its payment.
6. Waiver from AA and / or Government
Its good governance to seek an order of waiver from AA vide the Resolution Plan. So far, none of the orders approving the Resolution Plan have specifically mentioned about the waiver. However, the approval of the Plan indicates approval of all the clauses of the Plan. There should be clear mention in the Plan on what all the waiver is sought, after complying with the Reg.38 of CIRP Regulations.
The motto of law makers was to bring the Government from first priority to fifth in water fall mechanism, intentionally. It makes it clear that no further waiver needs to sought specifically from the Government when the Resolution Plan is in compliance with the provisions of IBC and Regulations.