CIRP Cannot be Shield to Corporate Applicant to avoid Legally Recoverable Government Obligations: NCLT [Read Order]

The National Company Law Tribunal New Delhi Bench held that the Corporate Applicant cannot take the shield of Corporate Insolvency Resolution Process (CIRP) to avoid the legally recoverable government dues.

In order to administer and transfer a fine dining restaurant with banquet facilities located in Delhi Haat, Janakpuri, New Delhi, M/s Imperial Banquets & Dining Private Limited (the "Corporate Applicant") was established as a Special Purpose Vehicle. For the operation, management, and transfer of the fine dining restaurant with banqueting facilities, it signed a 10-year concession agreement with Delhi Tourism and Transportation Development Corporation Limited (DTTDC) on December 11, 2015.

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Profitably operating until early 2020, the company was negatively hit by the COVID-19 lockout, which ultimately resulted in its liquidation. The Corporate Applicant's company continued to be impacted even after the lockdown was lifted, and DTTDC continued to charge annual concession fees.

The corporate applicant asked for the yearly concession costs, such as property tax and GST, to be waived because it was unable to pay its debts. Despite the DTTDC officials' verbal acceptance of the corporate applicant's request, nothing was done about it.

On April 29, 2023, the Corporate Applicant made a payment of Rs. 20 lakhs and suggested a payback plan. On May 4, 2023, DTTDC sent a demand letter for Rs. 5.63 crores even though they had already accepted the payment.

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The corporate applicant, who was offended by the Demand Letter, filed a writ petition in the Delhi High Court, but it was withdrawn on July 21, 2023, allowing them to seek authorities for a lenient review. Following that, on July 20, 2023, DTTDC sent out a notice of termination, and on September 25, 2023, the concession agreement was terminated.

For the forthcoming ceremonial season, the corporate applicant had already reserved reservations. In order to obtain a permanent and mandatory injunction against the DTTDC, the Corporate Applicant filed a Civil Suit before the Tis Hazari District Court. The Ld. Civil Judge issued a status quo order against the defendants on October 9, 2023.

The Corporate Applicant then offered a second proposal to resolve the issues and paid Rs. 25,00,000, but the DTTDC rejected it. The DTTDC then filed for eviction against the Estate Officer in accordance with the Public Premises (Eviction of Unauthorized Occupants) Act, 1971.

The bench of Shri Mahendra Khandelwal (Judicial Member) and Shri Atul Chaturvedi (Technical Member)Observed that the Corporate Applicant had defaulted in the payment of Rs. 7,72,12,314/. It noted that the Corporate Applicant entered into a 10-year Concession Agreement with DTTDC to operate and manage a fine dining restaurant and banquet facility.

The COVID-19 lockout, however, caused the corporate applicant to close, although Delhi Tourism and Transportation Development Corporation Limited kept charging annual concession fees and other fees. On May 4, 2023, the DTTDC made a demand for Rs. 5.63 crores after rejecting the settlement agreement.

The Tribunal ruled that the money owed to DTTDC cannot be ignored because it includes government obligations such as property taxes, license fees, and concession charges. The applicant decided to file for CIRP even though the List of Assets and Liabilities indicates assets of Rs. 5.57 crores, which is enough to partially satisfy the dues.

The Tribunal came to the conclusion that, rather than a true resolution of insolvency, the purpose of filing the Section 10 application seems to be to avoid lawfully recoverable government dues. As a result, the application may be rejected on the grounds that it attempts to abuse CIRP in order to evade paying taxes.

Since the panel determined that the corporate applicant was abusing the insolvency procedure to avoid responsibility for government debts owed to DTTDC, the application under Section 10 of the IBC was denied.

To Read the full text of the Order CLICK HERE

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