2024 (6) TMI 905 - AT - Central Excise

Appeals automatically abate when Corporate Insolvency Resolution Process begins under Insolvency and Bankruptcy Code 2016 Rule 22

V3 Engineers Pvt. Ltd. Versus Commissioner of Central Tax, Bengaluru North West and CCE, Bangalore-II (Vice-Versa)

The CESTAT Bangalore held that appeals abate once Corporate Insolvency Resolution Process (CIRP) is initiated and Insolvency Resolution Professional (IRP) ... Abatement of appeal - whether the Appeals continue after initiation of Corporate Insolvency Resolution Process (CIRP) and Order approving the Resolution plan passed/approved by the Learned NCLT under Insolvency and Bankruptcy Code, 2016? - HELD THAT:- The Mumbai bench of this Tribunal in the case of M/S. ALOK INDUSTRIES LTD. VERSUS COMMISSIONER OF CENTRAL EXCISE, BELAPUR AND COMMISSIONER OF CEN. EXCISE, MUMBAI CENTRAL [2022 (10) TMI 801 - CESTAT MUMBAI] the Learned Advocate for the appellant observed that 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 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 appeal abates once the CIRP is initiated and IRP appointed and/or Resolution plan is approved - the appeals filed by the Appellant and the Revenue abate as per Rule 22 of CESTAT (Procedure) Rules, 1982. Appeal abated. 1. ISSUES PRESENTED AND CONSIDERED Whether statutory appeals pending before the Tribunal continue after initiation of Corporate Insolvency Resolution Process (CIRP) against the appellant and/or after approval of a resolution plan by the National Company Law Tribunal (NCLT). Whether Rule 22 of the CESTAT (Procedure) Rules, 1982 operates to cause abatement of appeals upon adjudication as insolvent, commencement of CIRP, appointment of Interim/Resolution Professional, winding up or approval of a resolution plan by the NCLT. Whether the Tribunal retains jurisdiction to entertain or decide statutory appeals which, in effect, have been subsumed by an NCLT order approving a resolution plan, or whether the Tribunal becomes functus officio. Whether the binding effect of an NCLT-approved resolution plan (and the overriding effect of the Insolvency and Bankruptcy Code) prevents the Tribunal from passing orders in respect of demands or refunds that are covered by the resolution plan. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Continuance of appeals after initiation of CIRP and appointment of IRP/Resolution Professional Legal framework: Rule 22 of the CESTAT (Procedure) Rules, 1982 provides that where a party to an appeal is adjudicated insolvent or, in the case of a company, is being wound up, the appeal shall abate unless an application for continuance is made by or against the successor-in-interest or legal representative within sixty days (with discretion to extend for sufficient cause). Precedent treatment: Multiple benches of the Tribunal have applied Rule 22 to hold that appeals abate upon appointment of a successor-in-interest by the NCLT unless such successor applies for continuance; the judgment under review follows that line of authority. Interpretation and reasoning: The Rule is applicable the moment the successor-in-interest with sufficient representational rights is appointed by the NCLT (e.g., IRP/Resolution Professional). In the absence of an application by that successor for continuance within the prescribed period (or extended period), the statutory appeal abates. The Tribunal is a creature of statute and its competence is governed by the statute and Rules; it cannot proceed in respect of an appeal where the procedural precondition under Rule 22 is triggered and not complied with. Ratio vs. Obiter: Ratio - Rule 22 causes abatement of appeals upon adjudication as insolvent/appointment of successor unless continuance is sought by the successor. Obiter - observations on practical consequences (e.g., where to seek refunds) are ancillary. Conclusions: Appeals pending before the Tribunal abate on initiation of CIRP and appointment of IRP/Resolution Professional unless the successor-in-interest applies for continuance within the period prescribed by Rule 22 (or the Tribunal extends that period for sufficient cause). Issue 2: Effect of NCLT approval of a resolution plan on Tribunal's jurisdiction (functus officio) and binding character of the resolution plan Legal framework: The Insolvency and Bankruptcy Code provides for approval of a resolution plan by the NCLT; Section 238 (overriding effect) and related jurisprudence establish the binding nature of an NCLT-approved resolution plan on stakeholders, including government authorities. Precedent treatment: The Tribunal referred to decisions (including recent benches and higher court pronouncements) holding that an NCLT-approved resolution plan is binding and that impugned orders may merge in the NCLT order; several Tribunal benches have thus held appeals abated and CESTAT functus officio post-approval. Interpretation and reasoning: Once the resolution plan is approved by the NCLT, the appeal stands abated from that date and the Tribunal becomes functus officio in matters relating to that appeal because the resolution plan, by virtue of its binding and overriding status, subsumes the impugned orders and disposes of claims against the corporate debtor. The Tribunal cannot sit in judgment over the NCLT's order approving the resolution plan or re-open matters effectively resolved by that plan. Ratio vs. Obiter: Ratio - Approval of a resolution plan by the NCLT results in abatement of pending appeals and renders the Tribunal functus officio insofar as the appeals are concerned; the NCLT order is binding on stakeholders including revenue authorities. Obiter - remarks on specific reliefs (for example, the approach to refunds or ancillary procedural steps) are illustrative and not essential to the primary holding. Conclusions: Approval of a resolution plan by the NCLT causes abatement of pending appeals and precludes further exercise of appellate jurisdiction by the Tribunal in respect of matters covered by the resolution plan; the Tribunal's orders merge into the NCLT order and it becomes functus officio. Issue 3: Interaction between Rule 22 abatement and statutory demands/recovery proceedings against the corporate debtor Legal framework: Rule 22 governs continuance of appellate proceedings after insolvency events; the IBC and NCLT orders determine the status of statutory demands and remedies against the corporate debtor. Precedent treatment: Tribunal benches have consistently applied Rule 22 and recognised the binding nature of NCLT-approved plans; they have held that recovery or demand proceedings covered by the resolution plan are subject to the NCLT order. Interpretation and reasoning: Where the NCLT has approved a resolution plan that addresses statutory dues or the treatment of claims, proceedings before the Tribunal in relation to those dues abate. The Tribunal's inability to proceed flows from both Rule 22 and the overriding effect of the IBC; absent a continuance application by the lawful successor or an express carve-out in the resolution plan, the statutory appeal cannot survive. The Tribunal noted that issues such as refunds, even if sought by the appellant, cannot result in the Tribunal overruling or revisiting the NCLT's approval of the resolution plan and should be pursued before appropriate authorities consistent with the NCLT order. Ratio vs. Obiter: Ratio - Proceedings and appeals in respect of demands covered by an NCLT-approved resolution plan abate and cannot be pursued in the Tribunal; obiter - guidance on pursuing refunds or alternative fora. Conclusions: Proceedings for demand and recovery before the Tribunal abate to the extent they are subsumed by the NCLT-approved resolution plan; affected parties must act through the mechanisms permitted by the IBC and the terms of the approved plan. Cross-references Rule 22 of the CESTAT (Procedure) Rules, 1982 is dispositive on abatement when insolvency events occur; its operation must be read together with the binding and overriding effect of an NCLT-approved resolution plan under the IBC to determine whether the Tribunal retains jurisdiction. Prior Tribunal precedents consistently applying Rule 22 and respecting the NCLT's orders are followed rather than distinguished.