In Company Appeal (AT) (Insolvency) No. 205 of 2017, Pr. Director General of Income Tax (Admn. & TPS) vs M/s. Synergies Dooray Automotive Ltd., the two questions before the NCLAT were :-
(i) Whether the ‘Income Tax’, ‘Value Added Tax’ or other statutory dues, such as ‘Municipal Tax’, ‘Excise Duty’, etc. come within the meaning of ‘Operational Debt’ or not? and;
(ii) Whether the Central Government, the State Government or the legal authority having statutory claim, come within the meaning of ‘Operational Creditors’?
For the first question, the NCLAT decided that as per the definition of ‘Operational Creditor’ and the ‘Operational Debt’ as defined in Section 5(20) and Section 5(21) of the Insolvency Code, that there is no ambiguity in the said provision and the legislature has not used the word ‘and’ but chose the word ‘or’ between ‘goods or services’ including employment and before ‘a debt in respect of the payment of dues arising under any law for the time being in force and payable to the Central Government, and State Government or any local authority’.
For the second question, the NCLAT held that ‘Operational Debt’ in normal course means a debt arising during the operation of the Company (‘Corporate Debtor’). The ‘goods’ and ‘services’ including employment are required to keep the Company (‘Corporate Debtor’) operational as a going concern. If the Company (‘Corporate Debtor’) is operational and remains a going concern, only in
such case, the statutory liability, such as payment of Income Tax, Value Added Tax etc., will arise. As the ‘Income Tax’, ‘Value Added Tax’ and other statutory dues arising out of the existing law, arises when the Company is operational, we hold such statutory dues has direct nexus with operation of the Company. For the said reason also, we hold that all statutory dues including ‘Income Tax’, ‘Value Added Tax’ etc. come within the meaning of ‘Operational Debt’. The NCLAT further decided that ‘Income Tax Department of the Central Government’ and the ‘Sales Tax Department(s) of the State
Government’ and ‘local authority’, who are entitled for dues arising out of the existing law are ‘Operational Creditor’ within the meaning of Section 5(20) of the ‘I&B Code’.
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