NCLAT Upholds Assignment of GST Debt in CIRP, Dismisses Appeal by Ellison Oil Field Services
The tribunal ruled that GST dues, once converted to operational debt, can be assigned to private parties, dismissing concerns over constitutional violations.
In a landmark decision, the National Company Law Appellate Tribunal (NCLAT), Principal Bench, New Delhi, has dismissed an appeal by Ellison Oil Field Services Pvt. Ltd. challenging the assignment of GST dues as operational debt during the Corporate Insolvency Resolution Process (CIRP) of SES Energy Services India Pvt. Ltd. The tribunal upheld the legality of the assignment of GST debt to CITOC Ventures Pvt. Ltd., ruling that such an assignment does not contravene Article 265 of the Constitution or the Maharashtra GST Act, 2017.
The case revolved around the classification and treatment of GST dues as operational debt once the CIRP was initiated against SES Energy. The GST Department, initially a creditor, assigned its dues, amounting to Rs. 2,71,44,043, to CITOC Ventures Pvt. Ltd., which was then included in the Committee of Creditors (CoC) with a voting share of 12.76%.
Ellison Oil Field Services, the appellant, argued that the assignment was illegal, asserting that tax dues cannot be transferred to private entities as it would violate the sovereign nature of tax collection under Article 265. However, the tribunal, led by Justice Rakesh Kumar Jain, found that once the CIRP is initiated, the tax dues transform into operational debt, allowing them to be assigned under the Insolvency and Bankruptcy Code (IBC), 2016. The tribunal emphasized that such assignments are permissible and do not breach constitutional mandates.
The tribunal also addressed concerns regarding the legality of the CoC's reconstitution following the assignment. It concluded that the reconstitution was lawful and in compliance with the IBC regulations, allowing the CoC to approve a resolution plan with the new voting shares.
The judgment reinforces the flexibility within the IBC framework, enabling the assignment of debts to facilitate the resolution of insolvency cases. The tribunal's decision is expected to have significant implications for similar cases, particularly those involving government dues transformed into operational debts during insolvency proceedings.
Bottom Line:
Assignment of debt under Insolvency and Bankruptcy Code, 2016 - GST Department's claim treated as operational debt - Assignment of such debt to a private party permissible under the Code and does not violate Article 265 of the Constitution or the Maharashtra GST Act.
Statutory provision(s): Insolvency and Bankruptcy Code, 2016 (Sections 5(20), 5(21), 3(11)), Constitution of India (Article 265), Maharashtra GST Act, 2017 (Sections 9, 32, 76, 79)
