2024 (10) TMI 984 - HC - IBC

Recovery of Tax - Applicability of Section 31 of the IBC - Seeking a declaration that the demand notice and the communication issued to it by Gram Panchayat, Gowari, through its Secretary, Tahsil Rajura, District Chandrapur, be quashed and set aside - demand pertain to the dues for the period prior to 2019 i.e. the period prior to the petitioner's acquisition of the assets of the corporate debtor under the Insolvency and Bankruptcy Code, 2016 - HELD THAT - The liquidation process moved ahead and the petitioner acquired the assets, in due process and now the respondent want to stake its claim for recovery of the amount of tax outstanding and payable to it by the corporate debtor but once the petitioner has acquired the assets of the corporate debtor, the claims, if any, which were not raised, stand extinguished and the respondent cannot now seek to recover those claims from the petitioner, who acquired the assets of the corporate debtor through auction process under the IBC. Perusal of the scheme under the IBC and in particular Section 31, clearly prescribe that the resolution plan shall be binding on the Central Government, State Government or any local authority to whom a debt in respect of payment of dues arise under any law for the time being in force and the retrospective applicability of 2019 amendment to Section 31 is upheld by the Apex Court in the case of Ghanshyam Mishra Sons Pvt Ltd vs. Edelweiss Asset Reconstruction Company Ltd 2021 (4) TMI 613 - SUPREME COURT . The Apex Court has categorically held that the amendment is clarificatory and declaratory in nature and it would apply retrospectively even in relation to pending proceedings and to the dues owed prior to the amendment. One of the dominant object of the IBC is to see to it that an attempt is made to revive the corporate debtor and make it a running concern and since it contemplate that the resolution applicant has to prepare a resolution plan on the basis of the information, memorandum and which is expected to provide for the payment of insolvency resolution process costs, implementation and supervision resolution plan, once such a plan is approved, it shall bind to one and all. The demand notice dated 31.12.2023 (Annexure-M) and communication dated 12.01.2024 (Annexure-N) issued by respondent to the petitioner is bad in law, arbitrary and violative of Article 14 of the Constitution of India in so far as demand for dues pertaining to the period prior to 2019 i.e. period prior to the petitioner s acquisition of the assets of corporate debtor under the Insolvency and Bankruptcy Code, 2016 - the petitioner is not liable to pay any outstanding tax dues to the respondent pertaining to the period prior to the petitioner s acquisition of the assets of corporate debtor under the Insolvency and Bankruptcy Code, 2016. Petition disposed off.

Summary

Issues Involved:
1. Liability for tax dues prior to acquisition under the Insolvency and Bankruptcy Code, 2016 (IBC).
2. The effect of non-submission of claims by the respondent during the Corporate Insolvency Resolution Process (CIRP) and liquidation proceedings.
3. The applicability of Section 31 of the IBC and its amendments.
4. The rights of the petitioner post-acquisition of assets through the liquidation process.

Detailed Analysis:

1. Liability for tax dues prior to acquisition under the IBC:

The petitioner, a company involved in coal beneficiation, sought a declaration that it is not liable for tax dues claimed by the Gram Panchayat for periods before its acquisition of assets from Gupta Global Resources Private Limited under the IBC. The petitioner argued that the demand notice issued by the Gram Panchayat was arbitrary since the dues pertained to a period before its acquisition of the assets through the IBC process. The Court noted that the sale certificate issued during the liquidation process explicitly stated that the assets were acquired "free from all encumbrances and shall be free from payment of any levies, taxes or dues levied on the assets."

2. Effect of non-submission of claims by the respondent:

The respondent, as an operational creditor, failed to submit its claim for tax dues during the CIRP and subsequent liquidation proceedings. The Court emphasized that under the IBC, creditors are required to submit their claims within stipulated periods during these proceedings. The respondent's failure to do so resulted in the extinguishment of its claims. The Court highlighted that the respondent's attempt to recover dues after the petitioner acquired the assets was unsustainable, as the claims were not part of the resolution plan or liquidation proceedings.

3. Applicability of Section 31 of the IBC and its amendments:

The Court referred to Section 31 of the IBC, which stipulates that a resolution plan, once approved, is binding on all stakeholders, including government entities and local authorities. The retrospective applicability of the 2019 amendment to Section 31 was upheld by the Supreme Court in Ghanshyam Mishra & Sons Pvt Ltd vs. Edelweiss Asset Reconstruction Company Ltd. The Court reiterated that claims not part of an approved resolution plan are extinguished, and creditors cannot initiate proceedings for such claims post-approval.

4. Rights of the petitioner post-acquisition:

The petitioner acquired the assets through a liquidation process and received a sale certificate confirming the assets were free from encumbrances. The Court ruled that the respondent's demands for tax dues prior to the acquisition were invalid. However, it clarified that any tax liabilities arising after the acquisition were the petitioner's responsibility. The petitioner had already deposited a sum to cover post-acquisition tax dues, which the Court allowed the Gram Panchayat to adjust accordingly.

Conclusion:

The Court quashed the demand notices and communications issued by the respondent for tax dues prior to the petitioner's acquisition of assets. The judgment reinforced the binding nature of the IBC process and the extinguishment of claims not submitted during CIRP and liquidation proceedings. The rule was made absolute in terms of the relief sought by the petitioner, emphasizing adherence to the IBC framework and protecting the rights acquired through the liquidation process.