2024 (3) TMI 243 - HC - Insolvency and Bankruptcy

Validity of demand notice based on the order secured by the petitioner from NCLT - Corporate Insolvency Resolution Plan approved by the NCLT which proposed a NIL value against the sales tax dues - Revision of deemed assessment - failure on the part of the petitioner to submit necessary Form-C and Form-F - HELD THAT - The proceeding that was initiated before the National Company Law Board (NCLT) with the presentation of a petition under Section 8 of the IBC, 2016 on 16.07.2018 appears to be staged managed with a view to defeat the rights of scores of creditors including operating creditors such as the respondent Commercial Tax Department - Mere paper publications of notice to the financial creditors and the operational creditors is not sufficient. Fixing 31.07.2018 as the last date for filing claim statement also shows undue alacrity is getting orders for NCLT to defeat the rights of creditors of the petitioner. The Order passed by the National Company Law Board (NCLT) on 01.02.2019 approving the Corporate Insolvency Resolution Plan filed by Mr.Mahavir Chand Bafna, promoter of the petitioner Company on 20.12.2018 as a resolution applicant before the National Company Law Board (NCLT) CP/682(IB)/CB/2017 has also not disclosed the names of any of the financial creditors and the operational creditors and the details of discussion of the Committee of the Creditors (COC) before the Corporate Insolvency submitted by Mr.Mahavir Chand Bafna, the promoter of the petitioner - It merely states that the meeting of the Committee of Creditors (COC) was held on 27.09.2018, 30.11.2018 and 20.12.2018. It further records that the Committee of Creditors (COC) after deliberation approved the Corporate Insolvency Resolution Plan submitted by the Corporate debtor i.e. the promoter of the petitioner Mr. Mahavir Chand Bafna by passing the Resolution on 04.01.2019. NCLT as the Adjudicating Authority ought to have been careful before approving the Corporate Insolvency Resolution Process initiated by the promoter of the petitioner company. NCLT ought to have imposed penalty on the petitioner instead of sanctioning the plan - Entire course of event before NCLT shows that the proceedings initiated before the NCLT under Section 8 of the Insolvency Bankruptcy Code, 2016 was intended to defeat the rights of the financial creditors and the operational creditors and at behest of the petitioner. It was stayed managed by the petitioner itself. The challenge to the impugned demand notice based on the order secured by the petitioner from NCLT on 01.02.2019 in C.P/682(IB)/CB/2017 is unsustainable. Therefore, this writ petition is liable to be dismissed - petition dismissed.

Summary

Issues Involved:
1. Validity of the impugned notices demanding tax arrears.
2. Impact of the Corporate Insolvency Resolution Process (CIRP) on the tax demands.
3. Binding nature of the NCLT-approved resolution plan on the Commercial Tax Department.
4. Allegations of fraudulent initiation of insolvency proceedings.

Summary:

1. Validity of the Impugned Notices:
The petitioner challenged the notices dated 14.01.2020, 18.08.2020, and 05.09.2020 demanding tax arrears totaling Rs. 25,26,240/- for the assessment years 2013-14 to 2015-16 under VAT and CST. The dispute arose due to the petitioner's failure to submit necessary Form-C and Form-F, leading to an assessment order on 24.12.2018 for the year 2014-15.

2. Impact of the CIRP on the Tax Demands:
The petitioner was undergoing insolvency proceedings initiated by an operational creditor, M/s. Aries Limited, under the Insolvency and Bankruptcy Code, 2016. The NCLT, Chennai, passed a moratorium order on 16.07.2018, and a resolution plan was approved on 01.02.2019. The resolution plan proposed to pay NIL value against Rs. 0.53 crores due as Sales Tax and other contingent liabilities.

3. Binding Nature of the NCLT-Approved Resolution Plan:
The petitioner argued that the demand notices were unsustainable as the tax liability was crystallized at Rs. 53,00,000/- in the resolution plan. The respondent contended that the Commercial Tax Department was unaware of the NCLT proceedings and hence, the resolution plan was not binding on them. The court referenced the Supreme Court's decisions in Ghanashyam Mishra and Sons Private Limited and others, indicating that statutory demands payable to any State Government must be considered in the resolution plan.

4. Allegations of Fraudulent Initiation of Insolvency Proceedings:
The court observed discrepancies and undue haste in the insolvency proceedings initiated by the petitioner, suggesting it was staged to defeat the rights of creditors, including the Commercial Tax Department. The court noted that the resolution plan waived significant tax dues without proper participation from creditors. Under Section 65 of the IBC, fraudulent initiation of insolvency proceedings warrants penalties. The court criticized the NCLT for not imposing penalties and instead sanctioning the plan.

Conclusion:
The court dismissed the writ petition, stating that the challenge to the impugned demand notices based on the NCLT order was unsustainable. The proceedings before the NCLT were found to be irregular and intended to defeat creditor rights, leading to the dismissal of the petition with no costs.