2023 (11) TMI 474 - AT - Service Tax

Appeals abate upon appointment of Interim Resolution Professional and approval of resolution plan under Rule 22

Tiffins Barytes Versus Commissioner of CE & ST, Belgaum

CESTAT Bangalore ruled that appeals abate upon appointment of Interim Resolution Professional (IRP) and/or approval of resolution plan by NCLT. The ... Continuation/abatement of appeal - Order of NCLT approving the resolution plan has been passed - Non-payment of service tax - HELD THAT:- The Mumbai bench of this Tribunal in the case of M/s Alok Industries Ltd’s case [2022 (10) TMI 801 - CESTAT MUMBAI] analysed in detail Rule 22 of CESTAT (Procedure) Rules, 1982 and the case laws on the issue including those cited by the Ld. Advocate for the appellant observed that aforesaid Rule 22 should be applicable the moment the successor interest with sufficient rights is appointed by NCLT to make an application for continuation of the proceeding. The Hon’ble Supreme Court and High Courts in a catena of cases held that the Tribunal is a creature of the statute; it cannot travel beyond the express powers vested under the Statute or Rules framed under the statute while deciding a statutory Appeal filed before it against the Orders of the prescribed statutory authorities mentioned under the statute. The corollary, any order passed by the Tribunal beyond the vested powers under the statute would be non est in law. The view consistently expressed by this Tribunal in a series of cases that the appeal abates once the IRP is appointed and/or Resolution plan approved, agreed upon - the appeal abates as per Rule 22 of CESTAT (Procedure) Rules, 1982. ISSUES PRESENTED AND CONSIDERED 1. Whether an appellant is entitled to continue an appeal before the Tribunal after initiation and completion of Corporate Insolvency Resolution Process (CIRP) culminating in approval of a resolution plan by the Adjudicating Authority (NCLT) and its upholding on appeal. 2. Whether Rule 22 of the CESTAT (Procedure) Rules, 1982 applies on appointment of an Interim Resolution Professional (IRP) or on approval of a resolution plan, and the legal consequences of its application for continuance or abatement of the appeal. 3. Whether the Tribunal becomes functus officio and loses jurisdiction to adjudicate matters which are or become subject-matter of the approved resolution plan. 4. Whether, in presence of an approved resolution plan and consequent abatement, the Tribunal can adjudicate ancillary reliefs such as claims for refund that relate to the impugned orders merged in the NCLT-approved resolution. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Continuance of appeal after CIRP and approval of resolution plan Legal framework: The Insolvency and Bankruptcy Code regime permits initiation of CIRP and approval of a resolution plan by the Adjudicating Authority; where a company undergoing CIRP has an approved resolution plan, that plan is binding. Appeals to statutory tribunals are governed by their procedural rules, including provisions addressing abatement on death or insolvency (Rule 22, CESTAT Procedure Rules, 1982). Precedent Treatment: Multiple benches of the Tribunal have held that appeals abate upon appointment of a successor-in-interest by NCLT or upon approval of a resolution plan; higher court decisions have been referred to for the binding nature of resolution plans. Interpretation and reasoning: The Tribunal interprets the combined effect of IBC proceedings and Rule 22 to mean that when insolvency proceedings culminate in appointment of a successor-in-interest (via IRP, liquidator or resolution plan) the statutory appeal stands affected. The moment a successor-in-interest with sufficient representational rights is in place (or the resolution plan is approved), Rule 22 becomes applicable and it is for that successor to apply for continuance within the prescribed period. Ratio vs. Obiter: Ratio - appeals filed by a party undergoing CIRP abate upon the event (appointment of IRP/successor-in-interest or approval of resolution plan) activating Rule 22 unless a timely application for continuance is made by the successor-in-interest. Obiter - ancillary observations on litigants' strategic attempts to preserve selective reliefs while accepting the binding nature of an NCLT order. Conclusions: The appellant is not entitled to continue the appeal after the resolution plan is approved and upheld; absent an application for continuance by the successor-in-interest within the prescribed time, the appeal abates. Issue 2 - Applicability and operation of Rule 22 of CESTAT (Procedure) Rules, 1982 Legal framework: Rule 22 provides that where a party is adjudicated insolvent or, in the case of a company, is being wound up, the appeal shall abate unless an application is made by or against the successor-in-interest or legal representative within sixty days (with allowance for extension on sufficient cause). Precedent Treatment: Tribunal benches have analyzed Rule 22 in detail and applied it to cases where NCLT appointed IRP or approved resolution plans, treating Rule 22 as the operative provision causing abatement of appeals from the date of the triggering event. Interpretation and reasoning: The Tribunal reasons that Rule 22 is triggered by the occurrence of insolvency-related events (appointment of IRP, adjudication as insolvent, approval of resolution plan resulting in successor-in-interest). Once triggered, Rule 22 mandates abatement unless a successor seeks continuation within sixty days. The existence of an effective resolution plan and appointment of a representative/successor imposes the onus on that successor to seek continuance; failure to do so causes abatement as a matter of rule operation. Ratio vs. Obiter: Ratio - Rule 22 applies upon the occurrence of insolvency events and results in abatement unless timely application for continuance is made by successor-in-interest. Obiter - discussion on temporal point of abatement (from appointment of IRP or from approval of resolution plan) reflects consistent application from date of approval but recognizes applicability at the point successor-interest is constituted. Conclusions: Rule 22 applies and operates to abate the appeal from the date of the relevant insolvency event (notably approval of the resolution plan), absent a timely continuance application by the authorized successor-in-interest. Issue 3 - Tribunal's jurisdiction and status as functus officio post-approval of resolution plan Legal framework: Statutory tribunals are creatures of statute and derive jurisdiction and powers only to the extent conferred by statute and rules. A final adjudicatory act by the insolvency adjudicating authority approving a binding resolution plan affects other proceedings in which the corporate debtor is a party. Precedent Treatment: Tribunals and higher courts have held that once an NCLT approves a resolution plan and it attains finality, matters covered by that plan merge and the original forum may lose authority to re-adjudicate issues inconsistent with the resolution. Interpretation and reasoning: The Tribunal reasons that the approval of a resolution plan binds parties and operates to merge impugned orders into the NCLT order; consequently, the Tribunal lacks competence to re-open or sit in judgment over matters subsumed by the NCLT order. The Tribunal thus becomes functus officio in relation to the abated appeal and cannot exercise powers beyond those vested by statute and rules. Ratio vs. Obiter: Ratio - upon approval of a binding resolution plan that deals with the subject-matter of an appeal, the Tribunal becomes functus officio with respect to that appeal and cannot proceed to decide the appeal. Obiter - observations on the statutory limits of tribunal power and the principle that any order passed beyond vested powers is non est in law. Conclusions: The Tribunal becomes functus officio in respect of the abated appeal once the resolution plan is approved and upheld; it lacks jurisdiction thereafter to adjudicate the same matters. Issue 4 - Adjudication of ancillary reliefs (e.g., refund claims) after approval of resolution plan Legal framework: Reliefs ancillary to the principal dispute (such as refunds) ordinarily flow from the tribunal's adjudication of the main appeal; however, where the main dispute has been subsumed into an NCLT-approved resolution plan, the competence to grant such relief may be curtailed. Precedent Treatment: Earlier tribunal decisions indicate that impugned orders merge in the NCLT-approved resolution and that applications for reliefs not pressed in the appeal may need to be pursued before appropriate authorities or via successor-in-interest. Interpretation and reasoning: The Tribunal notes an inconsistency where a party accepts binding effect of the NCLT order for part of the demand while seeking preservation of a separate remedy (refund) before the Tribunal. The Tribunal questions its competence to grant reliefs that would effectively re-open or contradict the NCLT-approved resolution, and observes that refund claims not specifically raised in the appeal ought to be pursued through relevant authorities or by the successor-in-interest. Ratio vs. Obiter: Obiter - the view that the Tribunal cannot sit in judgment over an NCLT-approved resolution plan and that refund claims should be pursued before appropriate fora; core holding is focused on abatement and loss of jurisdiction rather than exhaustive rules on refunds. Conclusions: The Tribunal will not adjudicate ancillary reliefs (such as refund claims) that are subsumed by or would require revisiting the NCLT-approved resolution plan; such claims should be pursued through appropriate channels, and the Tribunal's power to grant them is effectively ousted by abatement and the binding resolution. Overall Disposition The appeal abates under Rule 22 of the CESTAT (Procedure) Rules, 1982 with effect from the relevant insolvency event (notably approval of the resolution plan), the Tribunal becomes functus officio in respect of the appeal, and no further adjudication on the appeal or miscellaneous applications survives before the Tribunal in view of the binding nature of the approved resolution plan.