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Synopsis

The Supreme Court has said once a resolution plan is approved by the National Company Law Tribunal, no belated claim can be included therein that was not made earlier and if such demands are taken into consideration, the resolution applicants would not be in a position to recommence the business of the corporate debtor on a clean slate.

A bench of Justices Abhay S Oka and Ujjal Bhuyan held that the demands raised by the first respondent, Income Tax department against the corporate debtor in respect of assessment years 2012-13 and 2013-14 are invalid and cannot be enforced.

Dealing with a plea, the bench said, "The additional demands made by the first respondent in respect of the assessment years 2012-13 and 2013-14 will operate as roadblocks in implementing the approved resolution plan, and appellants will not be able to restart the operations of the CD on a clean slate." 

The appeal filed by Vaibhav Goel under Section 62 of Insolvency and Bankruptcy Code, 2016 took an exception to the judgment and order of November 25, 2021 passed by the National Company Law Appellate Tribunal. 

The Corporate Insolvency Resolution Process (CIRP) was initiated concerning the corporate debtor M/s Tehri Iron and Steel Casting Ltd. The appellants were the joint resolution applicants. They submitted a resolution plan on January 21, 2019. The National Company Law Tribunal by its order of May 21, 2019, approved the resolution plan submitted by the appellants.

The resolution plan had referred to the liability of Rs16,85,79,469 of the first respondent (Income Tax Department) for the assessment year 2014-15 based on the demand of December 18, 2017, which was rectified under Section 154 of the Income Tax Act, 1961. The liability was shown in the resolution plan under the heading “Contingent liabilities”. 

After the approval of the resolution plan, the first respondent issued demand notices on December 26, 2019, and December 28, 201,9 under the IT Act concerning assessment years 2012- 13 and 2013-14, respectively, concerning the corporate debtor.

However, admittedly, no claim about the demands for the two assessment years was submitted before the resolution professional.

On June 2, 2020, as the IT department asserted the said demands, the second respondent, monitoring professional, applied to the NCLT for declaring that the demands made by the first respondent pertaining to assessment years 2012-13 and 2013-14 were invalid as it was not made until the resolution plan was approved on May 21, 2019.

On September 17, 2020, the NCLT dismissed the application, holding it to be frivolous. The costs of Rs one lakh were made payable by the appellants and the second respondent. Being aggrieved by the said order, an appeal under Section 61 of the IBC was preferred before the NCLAT. By the impugned judgment and order of November 25, 2021, the NCLAT dismissed the said appeal.

Before the apex court, the appellant contended the NCLT dismissed the application without assigning any reasons. His counsel pointed out that though no claim was received from the first respondent- IT department, pertaining to the assessment year 2014-15 till the submission of the resolution plan, the resolution professional by itself admitted the liability of payment of income tax for the assessment year 2014-15, which was pending as a contingent liability of the corporate debtor. 

The department claimed the NCLAT had rightly dismissed the appeal.

Examining the matter, the bench said, the income-tax liabilities for the assessment years 2012-13 and 2013-14 had not been shown as contingent liabilities under the resolution plan.

Referring to Ghanashyam Mishra and Sons Pvt Ltd through the authorised signatory Vs Edelweiss Asset Reconstruction Company Ltd through the Directors & Ors (2021), the bench said, "In view of the declaration of law made by this court, all the dues including the statutory dues owed to the Central Government, if not a part of the resolution plan, shall stand extinguished and no proceedings could be continued in respect of such dues for the period prior to the date on which the adjudicating authority grants its approval under Section 31 of the IBC".

In this case, the income tax dues of the corporate debtor for the assessment years 2012-13 and 2013-14 were not part of the approved resolution plan. Therefore, in view of sub-section (1) of Section 31, as interpreted by the top court, the dues of the first respondent owed by the corporate debtor for the assessment years 2012-13 and 2013-14 stand extinguished, the court said.

The bench also noted the decision of the court was brushed aside by the NCLAT, firstly on the ground that the said decision was not relied upon before NCLT and, secondly, on the ground that the appellants had not challenged the resolution plan.

"Unfortunately, the NCLAT has ignored the binding precedent and the legal effect of the approval of the resolution plan as laid down in paragraphs 102.1 to 102.3 of the decision. The reason given by NCLAT that the decision of this court cannot be considered as it was not cited before the NCLT is perverse," the bench said.

The court also said it could not approve NCLT's approach of not considering the application on merits and dismissing the same without recording any reasons and also by imposing costs. The order of payment of costs was unwarranted, it said.      

The bench finally allowed the appeal and set aside the impugned orders of NCLT and NCLAT.

Case Title: Vaibhav Goel & Anr Vs Deputy Commissioner of Income Tax & Anr