QUESTIONING OF APPROVED RESOLUTION PLAN BY STATUTORY AUTHORITIES, REGULATORY BODIES INCLUDING DIRECT AND INDIRECT TAX DEPARTMENTS

Resolution Plan

Section 31(1) of the Insolvency and Bankruptcy Code, 2016 (‘Code’ for short) provides that if the Adjudicating Authority is satisfied that the resolution plan as approved by the committee of creditors under section 30(4) meets the requirements as referred to in section 30(2), it shall by order approve the resolution plan.  Such Resolution plan 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 in the resolution plan.

Therefore the resolution plan is binding on the Central Government including its departments like income tax, GST etc.  It cannot be challenged by the Government Departments.

Income tax appeal during CIRP

In one income tax appeal, the Income Tax Appellate Tribunal, (‘ITAT’ for short)  Mumbai Bench held that the State Authorities, regulatory bodies, including direct and indirect tax departments cannot question the resolution plan approved by the Adjudicating Authority on the application of the Resolution Professional after getting the resolution plan approved by the Committee of Creditors.

In DY. COMMISSIONER OF INCOME TAX CENTRAL CIRCLE–5 (3) , MUMBAI VERSUS GLOBAL SOFTECH LTD. AND (VICE-VERSA) [2022 (3) TMI 971 - ITAT MUMBAI], the  present appeals have been filed by the Department as well as by the assessee challenging the order dated 27.04.2015 passed by the Commissioner of Income Tax (Appeals), for the assessment year 2012-13 under section 250 of the Income Tax Act, 1961.

The ITAT observed that the case of the assessee is pending in corporate insolvency resolution process initiated by Capman Conpro Private Limited and Vignahartha Corrugators Private Limited as financial creditors.  For that purpose the Adjudicating Authority passed moratorium order under section 14 of the Code.   The Adjudicating Authority appointed Shri Hemant Sharma as Interim Resolution Professional.

The ITAT observed that as per section 14 of the Codeinstitution of suits or continuation of pending suits or proceedings against the corporate debtor including execution of any judgment, decree or order in any court of law, tribunal, arbitration panel or other authority shall be prohibited during the moratorium period.    The period of moratorium shall have the effect from the date of such order till the completion of the corporate insolvency resolution process.

The ITAT observed that in the present case, the appeal filed by the Revenue is an institution of suit against the corporate debtor, which is prohibited under section 14 of the Code.  The ITAT relied on the following judgments-

• In case of ALCHEMIST ASSET RECONSTRUTION COMPANY LTD VERSUS M/S. HOTEL GAUDAVAN PVT. LTD. & ORS. [2017 (12) TMI 1107 - SUPREME COURT], the Supreme Court held that even arbitration proceedings cannot be initiated after imposition of the moratorium under section 14 (1) (a) has come into effect and it is non est in law and could not have been allowed to continue.

• in the case of PR. COMMISSIONER OF INCOME TAX VERSUS MONNET ISPAT AND ENERGY LTD. [2018 (8) TMI 1775 - SC ORDER], the Supreme Court has upheld  overriding nature and supremacy of the provisions of the Code over any other enactment in case of conflicting provisions, by virtue of a non-obstante clause contained in section 238 of the Code.

The ITAT held that as per section 31 of the Code, resolution plan as approved by the Adjudicating Authority shall be binding on the corporate debtor and its employees, members, creditors, guarantors and other stakeholders involved in the resolution plan. Thus, this will prevent State authorities, Regulatory bodies including Direct & Indirect Tax Departments from questioning the resolution plan. Therefore, there is no reason to keep this appeal pending.

The ITAT dismissed the appeal filed by the Department with liberty to the Department to file the appeal afresh after completion of moratorium period upon the revival of the Corporate Debtor as per Resolution Plan as approved by the Adjudicating Authority or upon appointment of the Liquidator, as the case may be.

The ITAT also held that the appeal filed by the assessee also cannot be sustained as the assessee did not furnish any permission obtained from the Adjudicating Authority.    No letter of authority issued by the Interim Resolution Professional in favor of the Authorized Signatory of the assessee, in respect of present cross-appeals.   Nor it has been brought on record whether the Interim Resolution Professional has been authorized by the Committee of Creditors.

The ITAT dismissed the appeal filed by the assessee  with the liberty to file the appeal afresh by the Interim Resolution Professional / Resolution Professional, as may be substituted by the Adjudicating Authority, on behalf of the Corporate Debtor with prior permission of the Adjudicating Authority; or after completion of moratorium period upon the revival of the Corporate Debtor as per Resolution Plan as approved by the Adjudicating Authority or upon appointment of the Liquidator, as the case may be.