2024 (5) TMI 42 - HC - GST

Extinguishment of liability as per order of NCLT - challenge to order issued u/s 73 of the SGST/CGST Act 2017 - extinguishment of liability which was acquired on account of auction purchase - HELD THAT - It would now be relevant to take note of the decision of the Hon ble Supreme Court in the case of GHANASHYAM MISHRA AND SONS PRIVATE LIMITED THROUGH THE AUTHORIZED SIGNATORY VERSUS EDELWEISS ASSET RECONSTRUCTION COMPANY LIMITED THROUGH THE DIRECTOR ORS. 2021 (4) TMI 613 - SUPREME COURT , where it was held that once a resolution plan is duly approved by the Adjudicating Authority under subsection (1) of Section 31, the claims as provided in the resolution plan shall stand frozen and will be binding on the Corporate Debtor and its employees, members, creditors, including the Central Government, any State Government or any local authority, guarantors and other stakeholders. There are no hesitation in holding that the order under Section 73 (Annexure P1) issued by respondent No. 1 in the three writ petitions is totally without jurisdiction and the same therefore deserves to be and are accordingly set aside/quashed. The writ petitions are allowed.

Summary

Issues Involved:

1. Validity of the order issued under Section 73 of the SGST/CGST Act 2017.
2. Extinguishment of liabilities of the corporate debtor post-liquidation and acquisition.
3. Applicability of NCLT orders and relevant Supreme Court judgments.

Summary:

1. Validity of the Order under Section 73 of the SGST/CGST Act 2017:

The petitioners challenged the orders issued by respondent No. 1 under Section 73 of the SGST/CGST Act 2017. The primary contention was that the petitioner No. 1 Company, which had gone into liquidation, and petitioner No. 2, which acquired the liquidated Company, should not be liable for the previous liabilities as per the NCLT order. The Court noted that the NCLT order dated 09.08.2021, effective from 20.06.2022, extinguished all liabilities of petitioner No. 1 prior to the transfer date. Despite this, the respondent authorities issued a show cause notice and passed the impugned orders under Section 73, which were challenged in these writ petitions.

2. Extinguishment of Liabilities of the Corporate Debtor Post-Liquidation and Acquisition:

The petitioners argued that as per the NCLT order, all claims and liabilities owed by the corporate debtor to any government authority or department were permanently extinguished from the transfer date. The Court referred to the relevant portion of the NCLT order which explicitly stated that all claims, liabilities, or obligations owed by the corporate debtor to any government authority or department, whether admitted or not, due or contingent, would stand permanently extinguished and would not be recoverable in any form from the corporate debtor or its successors.

3. Applicability of NCLT Orders and Relevant Supreme Court Judgments:

The Court also considered the decision of the Supreme Court in the case of *Ghanashyam Mishra and Sons Private Limited v. Edelweiss Asset Reconstruction Company Limited (2021) 9 SCC 657*, which held that once a resolution plan is approved by the Adjudicating Authority, it becomes binding on all stakeholders, and no further claims can be made against the successful resolution applicant. The Court emphasized that the legislative intent was to allow the resolution applicant to start with a fresh slate, free from any prior liabilities. Furthermore, the Court referred to a similar judgment by the Gujarat High Court in *KRBL Limited v. State of Gujarat R/Special Civil Application No. 19804 of 2022*, which supported the petitioners' stance.

Conclusion:

Based on the authoritative decisions and the NCLT order, the Court held that the orders under Section 73 issued by respondent No. 1 were without jurisdiction and deserved to be quashed. Consequently, the writ petitions were allowed, and the impugned orders were set aside. No order as to costs was made, and any pending miscellaneous petitions were closed.