9911796707
TMI Blog2022 (1) TMI 977X X X X Extracts X X X X X X X X Extracts X X X X ..... Road Lines and others had filed an application under Section 9 of the Insolvency and Bankruptcy Code, 2016 (IBC) as operational creditor for initiating corporate insolvency resolution process of petitioner No.1. The said application was admitted on 18.09.2017 by the National Company Law Tribunal (briefly, 'the Tribunal' hereinafter). By virtue of order of the Tribunal, Section 13 of IBC came into play and moratorium was ordered. As per Section 21 of the IBC, a committee of creditors was constituted from amongst the financial creditors of the corporate debtor i.e. petitioner No.1. 5. Thereafter, the resolution professional made a public announcement on 25.09.2017 inviting claims from all the creditors. It is stated that respondents did not submit claims before the resolution professional. As part of the resolution process, prospective resolution applicants were invited to present their resolution plans for the corporate debtor i.e. petitioner No.1. Petitioner No.2 as the resolution applicant submitted its resolution plan on 12.02.2018, which was thereafter revised pursuant to discussions held with the committee of creditors. The said resolution plan was revised from time to time a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... keholders involved in the resolution plan. The rights/claims of respondent No.2 are well protected under IBC. Therefore, respondent No.2 cannot exercise an independent right after an order is passed by the Tribunal approving the resolution plan. 11. Reference has also been made to a Government of Telangana order dated 21.03.2018 whereby and whereudner benefits were extended to petitioner No.2 for revival of petitioner No.1. It was stated therein that Government dues are to be settled proportionately with the dues of other operational creditors. Reliance has also been placed upon Clause 7.5 (c) of the resolution plan which states that upon approval of the resolution plan by the Tribunal all dues under the Act in relation to any period prior to the completion date shall stand extinguished and the corporate debtor shall not be liable to pay any such amount. All notices proposing to initiate any proceedings against the corporate debtor in relation to the period prior to the date of the order of the Tribunal and pending on that day shall stand abated and shall not be proceeded against. Post the order of the Tribunal, no reassessment / refund or any other proceedings under the Act shall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 52,15,129-00 (Rs. 15,49,43,866-00 less Rs. 97,28,73700). Besides the above, there were no other changes in the revised return. 19. Petitioner No.1 informed the Deputy Commissioner of Income Tax, CPC on 01.11.2018 that the mistake in the original return was rectified in the revised return. However, respondent No.3 issued the first impugned notice under Section 143 (2) of the Act. 20. Fundamental grievance of the petitioners is that by way of the impugned notices, several issues are being reopened. Reiterating that rights / claims of respondent No.2 are to be seen in the context of the IBC and that respondent No.2 cannot exercise an independent right after resolution plan is approved by the Tribunal, petitioners seek quashing of the impugned notices. 21. Respondent No.3 has filed counter affidavit. At the outset, respondent No.3 has questioned maintainability of the writ petition since the impugned notices were issued in exercise of the statutory jurisdiction vested with respondent No.3. The resolution plan sought to be relied upon by the petitioners is neither applicable nor binding upon the respondents. Respondent Nos.2 and 3 are neither operational creditors nor involved in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esent income tax proceedings would not be barred as they relate to future profits and not to dues prior to approval of the resolution plan. Clause 7.5 of the resolution plan is with respect to claims and liabilities against petitioner No.1/ corporate debtor and hence not applicable. Impugned notices pertain to scrutiny of the return of income filed on 17.10.2018 subsequent to the date of approval of the resolution plan i.e. 19.07.2018. 27. It is contended that the resolution plan cannot override or supersede statutory requirements. Any provision in the resolution plan contrary to or inconsistent with the statute would need to yield to such statutory prescriptions. Finally it is contended that respondent No.3 is not an operational creditor. The resolution plan was not put to the notice of respondent No.3 who never participated nor was involved in the making of such plan. However, without prejudice to such stand taken, it is contended that the resolution plan only seeks to restrict the proceedings where claims are made against the corporate debtor. No such claims have been made by respondent No.3 against petitioner No.1. 28. In the circumstances respondent No.3 seeks dismissal of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hen resolution professional made public announcement on 25.09.2017 inviting claims from all the creditors of the corporate debtor i.e. petitioner No.1, respondent i.e. Income Tax Department did not submit its claim. On 07.11.2017 the resolution professional filed income tax return on behalf of the corporate debtor for the assessment year 2017-18. Petitioner No.2 submitted resolution plan in respect of the corporate debtor on 12.02.2018. However, following discussions with the committee of creditors, revised / final resolution plan was submitted by petitioner No.2 on 30.04.2018. Resolution plan submitted by petitioner No.2, as revised, was approved by the committee of creditors and thereafter by the Tribunal on 19.07.2018. When respondent No.3 pointed out arithmetical error in the return filed on 07.11.2017 by issuing notice under Section 143 (1) (a) (ii) of the Act on 02.10.2018, petitioner No.1 filed revised return on 17.10.2018 accepting the error. This was followed by the impugned notices dated 22.09.2019, 14.10.2019 and 21.10.2019 under Sections 143(2) and 142 (1) of the Act. 34. Learned counsel for the petitioners has referred to Sections 5 (20) and 5 (21) of IBC to contend t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n behalf of the petitioners. The impugned notices have been issued under Sections 143 (2) and 142 (1) of the Act. As per those notices, petitioner No.1 has only been called upon to produce documents or furnish information in relation to its claim of carry forward of losses. There is nothing in the impugned notices which can be said to be in conflict with or in contravention of the resolution plan as approved. Therefore, the writ petition challenging the said notices is liable to be dismissed. 38. Without prejudice to the above contention, learned counsel for the respondents submits that there is no 'operational debt' of petitioner No.1 towards the respondents. Therefore, respondents cannot be construed to be operational creditor within the meaning of Section 5 (20) IBC. Since there are no dues to be paid by the petitioner to the Income Tax Department, Clause 7.5 of the resolution plan would not be applicable and cannot be construed to be binding on the respondents. In any view of the matter, Clause 7.5 (c) only states that assessments and notices issued prior to approval of the resolution plan would stand abated and prohibits reassessment or revision. It does not bar or prohibit i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f assets of such persons, to promote entrepreneurship, availability of credit and balance the interest of all the stakeholders including alteration in the order of priority of payment of Government dues and to establish an Insolvency and Bankruptcy Board of India and for matters connected therewith and incidental thereto. 45. To understand the essence of the IBC it is important to examine the statement of objects and reasons of IBC which reads as under: Statement of Objects and Reasons:- There is no single law in India that deals with insolvency and bankruptcy. Provisions relating to insolvency and bankruptcy for companies can be found in the Sick Industrial Companies (Special Provisions) Act, 1985, the Recovery of Debts Due to Banks and Financial Institutions Act, 1993, the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 and the Companies Act, 2013. These statutes provide for creation of multiple fora such as Board of Industrial and Financial Reconstruction (BIFR), Debts Recovery Tribunal (DRT) and National Company Law Tribunal (NCLT) and their respective Appellate Tribunals. Liquidation of companies is handled by the High Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l Excise Act, 1944, Customs Act, 1962, Income Tax Act, 1961, the Recovery of Debts Due to Banks and Financial Institutions Enforcement Act, 1993, the Finance Act, 1994, the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, the Sick Industrial Companies (Special Provisions) Repeal Act, 2003, the Payment and Settlement Systems Act, 2007, the Limited Liability Partnership Act, 2008, and the Companies Act, 2013. 5. The Code seeks to achieve the above objectives. 45.1 Thus, the core objective for introduction of IBC appears to be to provide an effective legal framework for timely resolution of insolvency and bankruptcy proceedings which would support development of credit markets while encouraging entrepreneurship. At the same time, IBC seeks to balance the interest of all the stakeholders in the payment of dues. It thus seek to improve the ease of doing business, facilitating more investments, in the process leading to higher economic growth and development. 46. 'Board' has been defined under Section 3 (1) to mean the Insolvency and Bankruptcy Board of India established under sub-Section (1) of Section 188. Part II comprises of Se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... constituted under Section 21 of IBC comprising of financial creditors of the corporate debtor. As per sub-Section (4), the committee of creditors may approve the resolution plan by a voting of not less than 66% of the voting share of financial creditors after duly considering its feasibility and viability. Once the resolution plan is approved by the committee of creditors, the resolution professional shall submit the same to the adjudicating authority under sub-Section (6). 50. Section 31 deals with approval of resolution plan. As per sub-Section (1), if the adjudicating authority is satisfied that the resolution plan as approved by the committee of creditors meets the requirements of sub-Section (2) of Section 30, it shall by order approve the resolution plan. Once the resolution plan is so approved by the adjudicating authority, it shall be binding on the corporate debtor and its employees, members, creditors including the Central Government, any State Government or any local authority to whom a debt in respect of the payment of dues arising under any law for the time being in force such as authorities to whom statutory dues are owed, guarantors and other stakeholders involved i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order of priority. 53. Finally, Section 238 IBC says that provisions of IBC shall have effect, notwithstanding anything inconsistent therewith contained in any other law for the time being in force or any instrument having effect by virtue of any such law. Thus, provisions of IBC will override other laws. 54. While on the IBC, we may refer to some of the judgments which may have a bearing on the present dispute. 55. In Dena Bank Vs. Bhikhabhai Prabhudas Parekh & Co. (2000) 5 SCC 694, Supreme Court has held that income tax dues being in the nature of crown debts do not take precedence over secured creditors who are private persons. It has been explained that the Crown's preferential right to recovery of debts over other creditors is confined to ordinary or unsecured creditors. The common law of England or the principles of equity and good conscience (as applicable to India) do not accord the Crown a preferential right for recovery of its debts over a mortgagee or pledgee of goods or a secured creditor. Thus, the common law doctrine of priority of Crown debts would not extend to providing preference to Crown debts over secured private debts. 56. Following the above, Delhi High C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Code, also militates against the rationale of Section 31 of the Code. A successful resolution Applicant cannot suddenly be faced with "undecided" claims after the resolution plan submitted by him has been accepted as this would amount to a hydra head popping up which would throw into uncertainty amounts payable by a prospective resolution Applicant who successfully takes over the business of the corporate debtor. All claims must be submitted to and decided by the resolution professional so that a prospective resolution Applicant knows exactly what has to be paid in order that it may then take over and run the business of the corporate debtor. This the successful resolution Applicant does on a fresh slate, as has been pointed out by us hereinabove. For these reasons, the NCLAT judgment must also be set aside on this count. 58. Finally in Ghanashyam Mishra case (5 supra) the question before the Supreme Court was as to whether any creditor including the Central Government, State Government or any local authority is bound by the resolution plan once it is approved by the adjudicating authority under Sub-Section (1) of Section 31 of IBC? The further question before the Supreme Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs and after being revised came to be approved by the Tribunal, vide order dated 19.07.2018. By the said order, Tribunal noted that the resolution plan as approved by the committee of creditors had taken into account the concessions given by the Government of Telangana, further observing that revival of the corporate debtor would enhance the interest of all the stakeholders and the economic condition of the area. Thus taking into account the finding that the resolution plan is in accordance with sub-Section (2) of Section 30 IBC, Tribunal being the adjudicating authority approved the same declaring that the resolution plan would be binding on all stakeholders. 62. While at the resolution plan, what is of relevance is the portion dealing with the amount due to the Government or governmental authorities. This is dealt with in Clause 7.5. Sub-Clause (c) deals specifically with regard to the dues under the Act. Clause 7.5 (c) of the resolution plan being relevant is extracted hereunder: Upon approval of this Resolution Plan by the NCLT, all dues under the provisions of Income Tax Act, 1961, including taxes, duty, penalties, interest, fines, cesses, unpaid tax deducted at source / ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act shall be initiated on the corporate debtor. 64. We may also refer to Clause 17.7 of the resolution plan which provides for tax and stamp duty exemptions. Sub-Clause (c) says that the corporate debtor shall be entitled to carry forward the unabsorbed depreciation and accumulated losses and to utilize such amounts to set off future tax obligations. Sub-Clause (c) of Clause 17.7 reads as under: "The Corporate Debtor shall be entitled to carry forward the unabsorbed depreciation and accumulated losses and to utilize such amounts to set off future tax obligations." 65. Adverting to the facts of the present case, it is seen that the date of approval of the resolution plan by the Tribunal is 19.07.2018. For the assessment year 2017-18, the resolution professional on behalf of the corporate debtor had filed the return of income on 07.11.2017. In that return of income, the corporate debtor disclosed loss of Rs. 15,49,43,866-00 and claimed refund of Rs. 11,47,698-00 on account of TDS. Thus the return was filed prior to approval of the resolution plan. After approval of the resolution plan by the Tribunal on 19.07.2018, Deputy Commissioner of Income Tax, CPC, Bangalore, issued no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ident that Income Tax authorities are seeking information for the purpose of making assessment for the assessment year 2017-18 as the return of the corporate debtor (petitioner No.1) has been taken up for scrutiny under CASS. The assessment year 2017-18 (previous year 2016-17) covers the period prior to approval of the resolution plan by the Tribunal on 19.07.2018. Clause 7.5 (c) as extracted and discussed above, bars all notices to initiate any proceeding against the corporate debtor in relation to the period prior to the date of the Tribunal's order, clarifying that such notices would stand abated. All assessment proceedings relating to the period prior to the completion date would stand terminated with all consequential liabilities being abated. That apart, as per paragraph No.17.7 (c) of the resolution plan, the corporate debtor is entitled to carry forward the unabsorbed and accumulated losses and to utilize such amounts to set off future tax obligations. 70. From the tone and tenor of the impugned notices what is evident is that respondents are seeking to pass assessment order under Section 143 (3) of the Act since the case of petitioner No.1 was selected for limited scrutin ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
