Crown debts that aren't part of an IBC Resolution Plan can't be enforced: KARNATAKA HIGH COURT

17th June,2021


Crown debts that aren't part of an IBC Resolution Plan can't be enforced: KARNATAKA HIGH COURT

The Karnataka High Court found that under the Insolvency and Bankruptcy Code (IBC), crown debts do not take precedence over secured creditors because Section 238 of the IBC provides for the IBC's overriding effect over other laws. As a result, the Court held that if the Central or State governments do not submit an application to recover debts or engage in the resolution process under the Insolvency and Bankruptcy Code, 2016 (IBC), their claims will be immediately extinguished. Crown obligations, it should be noted, do not take precedence over secured creditors who are private individuals. This is obvious from a reading of Section 238 of the "IBC," which provides for the "IBC's" overriding effect notwithstanding anything incongruous in any legislation now in force or effect by any such law. According to the verdict, if the departments of the Central or State Governments do not file an application or engage in the settlement process, their claims are immediately extinguished, citing the Hon'ble Supreme Court's decision in the case of Ghanashym Mishra. On an appeal filed by the Central government against a single-judge judgement, a Bench of Justices BV Nagarathna and Hanchate Sanjeev Kumar rendered the judgement. Ruchi Soya Industries, the respondent, would be obliged to pay import duty at 7.5 percent based on a 2012 notification rather than 12.5 percent based on a 2015 notification, according to the single-judge. The respondent was subjected to bankruptcy proceedings under the IBC, and the National Company Law Tribunal, Mumbai (NCLT) admitted the petition filed on December 8, 2017. The Supreme Court had ruled in the case that once a resolution plan has been approved by the Adjudicating Authority under Section 31(1) of the Insolvency and Bankruptcy Code, 2016, all claims that are not part of the resolution plan will be extinguished, and no one will be able to initiate or continue any proceedings in relation to a claim that is not part of the resolution plan. As a result, claims that are not part of the resolution plan will be extinguished, according to the High Court, which dismissed the appeal. The Central government's argument on the merits regarding the levy of extra duty based on a 2015 notification was likewise dismissed by the Court.