Brief Overview:
Resolution plan providing for extinguishment of statutory dues owed to SEZ Authority under the SEZ Act cannot be challenged post approval of the resolution plan in view of the overriding effect of the provisions of IBC.
[Noida Special Economic Zone Authority v. Manish Agarwal & Ors. (Civil Appeal No. 5918-19 of 2022; decided on 5th November 2024)]
Technical Details:
1) The Corporate Debtor (“CD”) was sub-leased a plot by Noida Special Economic Zone Authority (“Noida SEZ”). Due to continued default by the CD in payment of lease rentals including no activity on the said plot, Noida SEZ filed an application seeking initiation of insolvency of the CD before the Adjudicating Authority (“AA”) under the Insolvency and Bankruptcy Code, 2016 (“IBC”), which was admitted.
2) The resolution plan of the Successful Resolution Applicant (“SRA”) provided for payment of INR 50 lakhs to Noida SEZ against an admitted claim of approximately INR 6 crores.
3) Noida SEZ challenged the approval of the resolution plan before the AA and the Appellate Tribunal seeking payment of the entire admitted claim, with the option to pursue legal remedies for recovery of the balance amount as an alternative and inter alia asserted that:
(a) The attempt to by-pass payment of statutory fee would amount to unjust enrichment of the SRA in contravention of Section 34(2)(d) of the Special Economic Zone Act, 2005 (“SEZ Act”).
(b) The exemptions in the resolution plan from payments to Noida SEZ of any fees or penalty for renewal of the sub-lease and/or transfer charges due with regard to change of directorship / shareholding in favour of the SRA were in contravention of their established rules and principles of the functioning, especially with regard to the charges or penalties pertaining to change in any business model for transfer of units by the original allottee.
4) The SC dismissed the appeal in view of the overriding effect of the provisions of IBC as per Section 238, which would indeed override the SEZ Act as well. Further, post approval of the resolution plan, claims (including statutory dues) which do not form part of the resolution plan would stand extinguished and no proceedings in relation thereto could continue. Besides, the financial decisions taken by the CoC in their commercial wisdom, especially on viability or otherwise of the resolution plan, would prevail.
JC takeaway:
The IBC continues to be accorded supreme status which overrides all other statues, including special statutes. This decision further reiterates and ringfences the commercial wisdom of the CoC, treating it as paramount and largely non-justiciable.
For further details, please see:
Noida SEZ Authority v. Manish Agarwal & Ors.
For any queries/clarifications, please feel free to ping us and we will be happy to chat:
