In the Insolvency Resolution Process for Corporate Persons, an issue is generally discussed as to the status of statutory dues payable by the Corporate Person – whether the same will qualify as a financial debt or operational debt. To understand the issue, it would be useful to first know the definitions of certain terms defined under The Insolvency and Bankruptcy Code, 2016 (“IBC).

Some of the relevant definitions are discussed below:

  • “creditor” means any person to whom a debt is owed and includes a financial creditor, an operational creditor, a secured creditor, an unsecured creditor and a decree-holder.
  • “Debt” means a liability or obligation in respect of a claim which is due from any person and includes a financial debt and operational debt.
  • “financial creditor” means any person to whom a financial debt is owed and includes a person to whom such debt has been legally assigned or transferred to.
  • “financial debt” means a debt alongwith interest, if any, which is disbursed against the consideration for the time value of money and includes –
  • money borrowed against the payment of interest;
  • any amount raised by acceptance under any acceptance credit facility or its de-materialised equivalent ……………………………….
  • “operational creditor” means a person to whom an operational debt is owed and includes any person to whom such debt has been legally assigned or transferred.
  • “operational debt” means a claim in respect of the provisions of goods or services including employment or a debt in respect of the repayment of dues arising under any law for the time being in force and payable to the Central Government, any State Government or any local authority.

If we analyse the above definitions closely, statutory dues shall not fall either under the definition of “financial creditor” or “operational creditor” since the same cannot be said to have become due on account of disbursement of debt or supply of goods or services, etc..

The treatment of statutory dues shall be as per resolution plan approved by the Committee of Creditors. Once, the resolution plan, as approved by the Committee of Creditors, is approved by the Adjudicating Authority the same shall be binding on all stakeholders involved in the resolution plan including government authorities to whom statutory dues are payable. Therefore, the fate of statutory dues payable to government authorities will be initially decided by the Committee of Creditors and thereafter by the Adjudicating Authority when it considers the resolution plan.