2024 (2) TMI 309 - HC - Insolvency and Bankruptcy

Jurisdiction - power of NCLT to declare the VAT / Tax assessment order as void ab initio under Section 33(5) of IBC - HELD THAT - From the provisions of Section 14 of the IBC it is evident that Section 14 prescribes a moratorium on the initiation of CIRP proceedings and its effects. The Supreme Court, in its judgment in the case of SUNDARESH BHATT, LIQUIDATOR OF ABG SHIPYARD VERSUS CENTRAL BOARD OF INDIRECT TAXES AND CUSTOMS 2022 (8) TMI 1161 - SUPREME COURT , after considering the February 2020 Report of the Insolvency Law Committee, held that one of the purposes of the moratorium is to keep the assets of the Corporate Debtor together during the insolvency resolution process and to facilitate orderly completion of the processes envisaged under the Statute. Moratorium under Section 14 is to ensure the curtailing of parallel proceedings and reduce the possibility of conflicting outcomes in the process. Section 14(1)(a), (b) and (c) of the IBC shields and protects against pecuniary attacks against the Corporate Debtor. This is to provide the Corporate Debtor with breathing space to allow it to continue as a going concern and rehabilitate itself. Under Section 238, the provisions of IBC have an overriding effect on any other law for the time being in force or any instrument having effect by virtue of any law - after declaring the moratorium, there is an embargo on enforcing the demand, but there is no embargo under Section 14, read with Section 33(5) of the IBC, for determining the quantum of tax and other levies, if any, against the Corporate Debtor. This Court finds the impugned order passed by the National Company Law Tribunal, Kochi Bench, as preposterous and untenable. The Company Law Tribunal has no power and authority under the IBC to declare an assessment order as void ab initio and non est in law. Such an order only reflects the competence of the persons who are manning such an important Tribunal - The Order shows the lack of basic understanding of the law. Instead of considering the application by the 2nd respondent for permission to file an appeal against the assessment order, the National Company Law Tribunal, Kochi Bench, has assumed the jurisdiction of the Constitutional Court to declare the assessment order as void ab initio. The matter is remitted back to the National Company Law Tribunal, Kochi Bench, to consider and pass an order on the application of the 2nd respondent - Petition allowed by way of remand.

Summary

Issues involved:
The issues involved in the judgment are the power of the National Company Law Tribunal to declare an assessment order void ab initio under Section 33(5) of the Insolvency and Bankruptcy Code, 2016 (IBC).

Issue 1: Assessment Order Declaration
The petitioner, a Deputy Commissioner, challenged an order passed by the National Company Law Tribunal declaring an assessment order as void ab initio under Section 33(5) of the IBC. The Tribunal dismissed the respondent's application and directed them to consider the claim independently, disregarding the assessment order.

Details:
- The Corporate Debtor was admitted into Corporate Insolvency Resolution Process (CIRP) and a moratorium was declared under Section 14 of the IBC.
- The assessment for the year 2015-16 revealed irregularities, leading to a claim by the Department against the Corporate Debtor.
- The Tribunal's order was based on the prohibition under Section 14(1)(a) of the IBC, declaring the assessment order void ab initio.

Issue 2: Moratorium Provisions
The Court considered the provisions of Section 14 of the IBC, which mandates a moratorium on legal actions against the Corporate Debtor. The Supreme Court's interpretation emphasized the purpose of the moratorium to protect the assets of the Corporate Debtor during insolvency resolution.

Details:
- The moratorium under Section 14 aims to prevent coercive legal actions against the Corporate Debtor and safeguard its assets.
- The Supreme Court's judgment highlighted the importance of the moratorium in maintaining the Corporate Debtor's assets during the resolution process.

Issue 3: Legal Authority and Recovery
The judgment discussed the authority of the Tribunal and the limitations on enforcing recovery during the moratorium period. It emphasized that while assessments can be initiated, recovery actions are restricted during the moratorium.

Details:
- The Tribunal's power is limited during the moratorium, allowing only assessments without enforcing recovery actions.
- The Supreme Court's rulings emphasized the boundaries of authority in initiating recovery actions during the moratorium period.

Conclusion:
The High Court found the Tribunal's order declaring the assessment void ab initio as unjustified and lacking legal basis. The Court set aside the impugned order and remitted the matter back to the Tribunal for reconsideration.