GOVT DEPARTMENTS POSE MAJOR HURDLE IN BANKRUPTCY CASES

The tax departments did not like being put behind others in the IBC, but they accepted it. Some other departments have not quite reconciled to the Code’s basic premise

- PROSENJIT DATTA

There have been many heated debates of late about the 90% or higher haircuts that lenders have taken in several high-profile bankruptcy resolutions. Erstwhile promoters, resolution professionals and even the committee of creditors have all been blamed by turns for the state of affairs. Opinion writers have written angry columns and TV channels have carried heated panel discussions. Policymakers have not been sitting idle either. Several IBC clauses are being tweaked and other new clauses are being introduced to plug loopholes and make the process smoother and more robust.

One issue that has cropped up as a major hurdle in multiple bankruptcy cases but has seen very little discussion though is the role of some government departments. There have been a number of cases where either an arm of the Union government or a state government department or a regulator has thrown a spanner at the resolution process.

This should not be happening because the IBC is fairly clear where the government dues stand in a bankruptcy proceeding. For all extents and purposes, the government is an operational creditor and not seen at par with financial creditors. This includes statutory dues such as unpaid taxes, as well as fees for various licences or other approvals that the bankrupt firm has acquired and needs to pay.