Resolution of Debts and Insolvency and Bankruptcy Code, 2016: The Status of Government Dues and Taxes

Published date01 June 2021
Date01 June 2021
Subject MatterArticles
Resolution of Debts
and Insolvency and
Bankruptcy Code,
2016: The Status of
Government Dues
and Taxes
Jasper Vikas1
The resolution of Corporate Debts has always been an intrinsic issue for the
Government, because increase in distressed units would have a cyclic effect on the
growth of the Indian economy. Therefore, since 1985, the Government has tried
to arrest financial distress by way of statutory solutions. First, it was Sick Industrial
Companies (Special Provisions) Act, 1985, and thereafter, a number of other legisla-
tions such as, the Recovery of Debts Due to Banks and Financial Institutions Act,
1993 and the Securitisation and Reconstruction of Financial Assets and Enforcement
of Security Interest Act, 2002 were passed, but these efforts went in vain, since
non-performing assets (NPA) kept escalating. The Insolvency and Bankruptcy Code,
2016 (IBC, 2016) was passed with much enthusiasm to check these increasing
NPAs. But, with the passage of time, it has been realised that, IBC 2016 has not been
that effective when it comes to combatting the growth of NPAs or recovery of
debt especially of the government authorities. The worst hit is the recovery of the
state taxes. Taxes are the links between the state and development of an economy,
as they are collected for utilisation towards welfare goals of the government and
therefore, any deficiency in the collection of taxes, has a direct impact on the preva-
lent inequality in the society and it also directly affects the rights of the vulnerable
groups and marginalised classes, such as, their right to food, health and shelter and
other human rights’ issues. The objective of the present research article, therefore,
is first, to analyse the different legislations passed by the Parliament to look at the
pertinent issues related to NPAs and collection of taxes. Second , the purpose is
to examine as to how the non-recovery of taxes directly affects the State welfare
schemes, which further directly affects the human rights of the weaker sections of
the society and vulnerable classes and third, as to how IBC, 2016 has addressed the
issues of recovery of tax dues.
Journal of National
Law University Delhi
8(1–2) 29–44, 2021
© 2022 National Law
University Delhi
Reprints and permissions:
DOI: 10.1177/22774017221096901
1 Centre for Tax Laws, National Law University, New Delhi, India.
Corresponding author:
Jasper Vikas, Centre for Tax Laws, National Law University, New Delhi 110078, India.
30 Journal of National Law University Delhi 8(1–2)
Corporate debtor, government dues, human rights, IBC 2016, insolvency, resolu-
tion professional, sustainable development goals, taxes, welfare state
Ours is a welfare state.1 The impact of increase in the non-performing assets
(NPAs)2 affects the economy of a nation as it becomes difficult for the govern-
ments to run their welfare schemes and execute their popular programmes. The
Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) is
one such example, which has categorically shown a negative net balance of
`8,6860 million.3
Though India has been an agricultural country but its growth and sustenance
depends largely on its industrial sector. The different industrial sectors of India
have witnessed astronomical growth over the last few decades, however, due to
financial distress faced by the industries, Sick Industrial Companies (Special
Provisions) Act, 1985 (SICA) was brought which was intended to timely detect
sick industrial companies4 and to determine measures for their revival.5
SICA, in fact, not only addressed the much necessary issue of faster remedy
but it also promised to act preventively with the help of a body of experts. During
the pendency of the matter under SICA, various recovery proceedings pending
against a sick company were put on ice. A scheme was drawn for rehabilitation
of the Company entailing different measures such as financial reconstruction, to
help the Company to get rid of the sickness. But, the same was done while protect-
ing the statutory dues and dues of other creditors, whose consent to the scaling
down of their liabilities, was mandatory. However, lacunae in SICA brought in
Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (RDDBFI)
under which specialised Tribunals being Debt Recovery Tribunals and Debt
Recovery Appellate Tribunals were set up to ensure quick recovery by banks and
financial institutions with loan amount exceeding `1 million.6 Subsequently,
Securitisation and Reconstruction of Financial Assets and Enforcement of
1 India is a welfare state that can be construed from various provisions of the Constitution of India,
such as Part IV which deals with Directive Principles of State Policy (DPSPs), particularly, Article 39
which deals with the principle of egalitarianism as it directs the State to make laws providing equal
access to all to means of livelihood, and Article 39A which provides for free legal aid to all so as to
have access to justice. Similarly, Article 43 stipulates that the state should secure the living wage along
with the decent standard for the workers.
2 Non-performing assets are the assets/accounts for which the principal or interest payment remained
overdue for a time period of 90 days.
3 Priscilla Jebaraj, No Money Left in MGNREGA Coffers: 21 States in the Red, The hindu, October
29, 2021.
4 As per Section 3(1)(o) of SICA, a ‘sick industrial company’ means an industrial company (being a
company registered for not less than five years) which has at the end of any financial year accumulated
losses equal to or exceeding its entire net worth.
5 Preamble to SICA
6 Section 1(4) of RDDB Act, 1993.

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