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TMI Blog2024 (5) TMI 1359X X X X Extracts X X X X X X X X Extracts X X X X ..... the Resolution Plan is approved, it shall be binding on the Corporate Debtor and, inter-alia, its creditors, which include, inter-alia, the Central Government under any law for the time being in force and also on authorities to whom statutory dues are owed; that the provision also stipulates that the Approved Plan shall be binding on guarantors and other stakeholders involved in forging; that a successful applicant whose Resolution Plan has been approved should not be put in a position where it is called upon to liquidate dues of creditors, including statutory creditors which are not imbedded in the Resolution Plan. Section 238 of the Code squarely states that any ambiguity that the provisions of the Code shall have effect, not withstanding anything inconsistent contained in any other law for the time being enforce or any instrument having effect under any such law; that thus where matters covered by the Code are concerned, including Insolvency Resolution of Corporate persons, if the provisions contained therein are inconsistent with any other Statutes, including the Income Tax Act, 1961, they shall override such laws; and that if such an approach is not adopted, it will undermine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny action with respect to any issues or transactions prior to the date of the commencement of the insolvency process and specifically deals with the order passed by the Assessing Officer." 3. The Additional Ground was admitted as it raises a purely legal issue, for which, no new evidence is required to be adduced at this stage. 4. Apropos the merits of the Additional Ground, the learned Counsel for the assessee has submitted that the order under appeal has wrongly been passed in violation of the provisions of the Insolvency and Bankruptcy Code, 2016, although the said Code clearly overrides the provisions of any other law for the time being in force. It has further been submitted that by virtue of the order dated 01.02.2021, the National Company Law Tribunal, dealing with the order passed by the Assessing Officer, had specifically precluded the Income Tax Department from undertaking any action with regard to any issue or transaction pertaining to the period prior to the date of commencement of the insolvency process in the case of the assessee. It has been submitted that the impugned order has also been passed in violation of the said NCLT Order. 5. It has been contended that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y. It has been stated that no Governmental authority (including the Income-tax Department) shall have any further rights or claims against the Company, in respect of any claim relating to the period prior to the approval of the Resolution Plan. It is further stated that the approved Resolution Plan further categorically provides for the effect of the Resolution Plan once the same is approved by the Adjudicating Authority. It has been stated that in terms of the approved Resolution Plan, any liability arising for a period prior to the Resolution Plan shall immediately stand extinguished/abated/withdrawn and nothing shall be due and payable. 5.1 It has been contended that under Section 31(1) of the IBC, the Resolution Plan as approved by the Hon'ble Adjudicating Authority, is binding on all the creditors and other stakeholders. Further by the clarificatory amendment brought to the said Section 31 (1) by the Insolvency and Bankruptcy Code (Amendment) Act, 2019, it has been categorically provided that a Resolution Plan upon its approval shall be binding on the Central and the State Government including local authorities to whom a debt is owed. 5.2 It has been stated that further, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as presented. 7. Having considered the rival contentions in the light of the material placed on record with regard to the additional ground raised, it is seen that indeed the assessee company underwent a CIRP in terms of the IBC, under the aegis of the NCLT. With regard to the CIRP, Section 7 of the IBC provides that; Section 7. (1) A financial creditor either by itself or jointly with other financial creditors may file an application for initiating corporate insolvency resolution process against a corporate debtor before the Adjudicating Authority when a default has occurred. Explanation.--For the purposes of this sub-section, a default includes a default in respect of a financial debt owed not only to the applicant financial creditor but to any other financial creditor of the corporate debtor. (2) The financial creditor shall make an application under sub-section (1) in such form and manner and accompanied with such fee as may be prescribed. (3) The financial creditor shall, along with the application furnish-- (a) record of the default recorded with the information utility or such other record or evidence of default as may be specified; (b) the name of the resolutio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Debtor' subject to the approval of this Resolution Plan by the NCLT, Chandigarh Bench, the Resolution Applicant were to infuse requisite funds, to the extent of the equity investment and debt infusion proposed in the Resolution Plan, into the assessee company. 8. Section 5(20) of the IBC defines 'Operational Creditor' 20) "operational creditor" means a person to whom an operational debt is owed and includes any person to whom such debt has been legally assigned or transferred; 8.1 Section 5(21) of the IBC describes 'Operational Debt'; (21) "operational debt" means a claim in respect of the provision of goods or services including employment or a debt in respect of the repayment of dues arising under any law for the time being in force and payable to the Central Government, any State Government or any local authority; 9. As per the IBC, as rightly contended and not disputed, any claim or demand assessed or raised or ordered by the Income Tax Department would be in the nature of operational debt and the Department would be treated as an Operational Creditor of the company. 9.1 A perusal of the Resolution Plan shows that no amounts are due from or payable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed/verified or not, due or contingent, asserted or undisputed, present or future) pertaining to the period prior to the NCLT Approval Date shall stand permanently extinguished with9out any further act or deed by the Resolution Applicant and the Resolution Applicant, the Corporate Debtor and the SPV shall not at any point of time directly or indirectly, have any obligation, liability or duty in relation thereto. (xi) The above said amount of Rs. 1.79 crores or amount mandatorily required to be paid as mentioned in Clause 5.4(e)(iii), whichever is higher, towards the Operational Creditors is the maximum payment to be made in this Plan, against the claims of the Operational Creditors, and under no circumstances, including any escalation in the Verified Amount of the Operational Creditors, and any additional exposure, in this regard, would be brought on to the Corporate Debtor/ Resolution Application/ SPV. Further, the Corporate Debtor / Resolution Applicant / SAPV will have no additional exposure arising out of the claims of the Operational Creditors which have not been admitted and/or the claims which have been rejected (partly or fully) by the Resolution Professional and/or becaus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arising for a period prior to the Resolution Plan shall stand extinguished or abated or withdrawn and nothing shall be due and payable. In this regard, the Resolution Plan specifically clearly states in clause (g), with regard to the claims under litigation, that all litigation/disputes and judicial proceedings against the assessee company in relation to any period prior to the NCLT approval date, shall be settled at 'Nil' value as against any amount determined, to be paid by the assessee company. It was specifically stated that all disputes in relation to any period on or before the NCLT approval date, shall be settled at 'Nil' value, by virtue of the order of the NCLT approving the Resolution Plan. 11.1 Then, Section 31(1) of the IBC reads as follows : "31. Approval of resolution plan. - (1) If the Adjudicating Authority is satisfied that the resolution plan as approved by the committee of creditors under sub-section (4) of section 30 meets the requirements as referred to in sub-section (2) of section 30, it shall by order approve the resolution plan which shall be binding on the corporate debtor and its employees, members, creditors including the Central Government, a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er laws for the time being enforce, in so far as they are inconsistent with the provisions of the IBC, and, ii) That the impugned order has been passed in violation or ignorance of the order dated 10.02.2021, passed by the NCLT, Chandigarh, by which order, the Income Tax Department has been precluded from undertaking any action with respect to any issue/transaction prior to the date of commencement of the insolvency process, holding so while specifically dealing with the order passed by the AO. 13. In this regard, in 'Tata Steel Ltd. Vs Dy. CIT', [2014] 460 ITR 595 (Del), it has been held, by virtue of order dated 31.10.2023, that dues payable to creditors in a Corporate Insolvency Resolution Proceedings, under the Insolvency and Bankruptcy Code, 2016 including statutory creditors for periods prior to the date when the Resolution Plan is approved, can only be paid in accordance with the terms contained in the Resolution Plan; that where no provision is made for claims lodged on behalf of the creditors, or there is failure to lodge a claim with the Resolution Professional, all such claims stand extinguished; that this position in law obtains because of the provisions of Section 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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