Government losing money as recoveries against statutory dues are a pittance

Is the government losing money at the cost of bankers and other creditors in the Insolvency and Bankruptcy Code (IBC)? The limited data that Insolvencytracker.in culled out show the government is taking big haircuts on statutory dues in resolutions or liquidation under the IBC. Statutory dues are treated with less priority under IBC when it comes to distribution of money recovered through resolutions or liquidations.

Statutory dues like taxes, compliance fees, payments towards use of government utility services, etc are treated as operational debt under IBC. And given the precedence that financial creditors get over operational creditors, it is usually the statutory dues, which come lowest in the priority of the Committee of Creditors (CoC) while approving resolution plans.

So, how much is the government ‘losing’ in order to facilitate the smooth resolution of default cases and allowing banks to recover their long-stuck money in debt-laden companies?

Our RTI query

Given the recovery rates of statutory dues are not given separately – they are often clubbed with operational debts and not separately mentioned – Insolvencytracker.in decided to file RTI and seek details on same from the Insolvency and Bankruptcy Board of India (IBBI).

We asked two questions in our RTI application:

1. Of all the CIRP cases that have seen closure either through resolution or liquidation, what was total of statutory claims made and what has been recovery rate?
2. Give us the break-up of statutory claims made, claims accepted and amount recovered in the 12 large CIRP cases referred to NCLT by the RBI.

The replies to our RTI queries were more or less same – the IBBI does not have any data on statutory dues. Here are the responses that we got:

1. The information as sought is not available. However, the details of CIRPs which yielded in resolution or liquidation, including admitted claim and realisable amount to Financial and Operational Creditors as on 31.5.2020 is available in the link given below: https://ibbi.gov.in/uploads/whatsnew/d0e6b 81b8e481ee2ac14defefeb10baa.pdf

• The information as sought is not available. However, the details of CIRPs in respect of 12 large accounts is available in the quarterly news letter of June, 2020 published by IBBI and the link of the same is given below: https://ibbi.gov.in/uploads/publication/b58c e20ca4be9285b54e0aaf7752d5c1.pdf

Further, the details of CIRPs which yielded in resolution as on 31.05.2020 and liquidation as on 30th June, 2020, which includes admitted claim and realisable amount to Financial and Operational Creditors is available at the following links:

https://ibbi.gov.in/uploads/whatsnew/d0e6b 81b8e481ee2ac14defefeb10baa.pdf https://www.ibbi.gov.in/uploads/whatsnew/ a98a313021b1250be5ca3b9301626f25.pdf

Digging into NCLT orders

So, we decided to check for ourselves if the NCLT order copies have any information on the recovery made by government departments.

What we found in most cases, recovery against statutory dues is not given separately. The recoveries under statutory dues are clubbed together with the recovery made by operational creditors.

But we were lucky enough to find a few cases, where the NCLT order copies had separately mentioned the recoveries made against statutory dues.

For example, in the Asian Colour Coated Ispat Ltd CIRP case, the recovery against statutory dues of Rs 220 crore was a mere Rs 9.87 crore, or 4.5% of the total claims admitted.  The financial creditors recovered Rs 1,500 crore of the Rs 4,864 crore or a recovery rate of 30.84%.  JSW Steel Coated Products acquired Asian Colour Coated Ispat recently through the insolvency process for Rs 1,550 crore against total creditors’ claims of Rs 7,123 crore.

In the Uttam Galva Metallics case, the recovery against statutory dues of Rs 158 crore is less than Rs 1 crore, that’s 0.2% of the total dues. Uttam Galva Metallics has been acquired by US-based fund Carval Investors for a sum of Rs 970 crore.

In the Ruchi Soya case, however, government was lucky enough to recover Rs 25 crore against statutory dues of Rs 45 crore. In the Technova Plastic CIRP case, which saw a resolution in September 2020, recoveries against statutory dues of Rs 40 crore were a meager Rs 86 lakh, or 2.17% of the admitted claims.

While experts say government allowing financial debt to take precedence over statutory dues is one of the biggest positive shifts in approach under IBC, it is equally true that such low recoveries by government departments might be indirectly creating hurdles in quicker resolutions.

It is a well-known fact that even after the resolution, tax authorities or other government departments keep going after the new owners asking them to pay full dues. This often leads to litigations post-resolutions and further delays in full handing over of the company to new owners.

Given the fact that IBC has been framed in such a way to give financial creditors better control over resolution of loan default cases, it is likely that the financial creditors would keep their interest over others. But in doing so, they are creating a lot of disaffection among other category of creditors.

Meagre recoveries