2025 (3) TMI 1024 - HC - GST

Clean Slate for Resolved Companies: Tax Notices Halted After Resolution Plan, Protecting New Management's Fresh Start

HC granted interim relief to petitioner challenging tax orders post-resolution plan. Applying Supreme Court precedent from Ghanashyam Mishra case, the ... Recovery of any tax for any period prior to the date when the Resolution Plan was sanctioned - Petitioner has undergone a successful Corporate Insolvency Resolution Process (CIRP) and the Resolution Plan is approved by the NCLT - HELD THAT:- The Affidavits in Reply, if any, shall be filed by the said Respondents on or before 7th April, 2025 and a copy of the same shall be served on the Advocates for the Petitioner. If the Petitioner wants to file an Affidavit-in-Rejoinder, they may do so on or before 15th April, 2025 and serve a copy of the same on the Advocate for the concerned Respondents. As far as interim relief is concerned, it is found that a strong prima facie case is made out for staying the order passed by Respondent Nos. 4 and 5 as well as the adjudication of the impugned Show Cause Notices. This is said because, atleast prima facie, the Hon’ble Supreme Court in the case of Ghanashyam Mishra [2021 (4) TMI 613 - SUPREME COURT] has framed a principle that when the new management takes over a Company under a Resolution Plan, it starts with the clean slate and would not be liable for the past dues of the Company and which were incurred prior to the sanction of the Resolution Plan. Conclusion - i) The principle that a company, post-CIRP and with an NCLT-approved Resolution Plan, is not liable for past dues is reaffirmed. This supports the notion of a 'clean slate' for new management. ii) An ad-interim relief granted, staying the impugned orders and notices until further orders, indicating a strong preliminary case in favor of the Petitioner. The matter is placed on 21st April, 2025 under the caption “for ad-interim reliefs”. 1. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered in this judgment are: Whether the orders and show cause notices issued by the Respondents under the CGST/MGST Act, 2017 can be enforced against the Petitioner after the approval of the Resolution Plan by the NCLT under the Insolvency and Bankruptcy Code, 2016. Whether the principle established by the Supreme Court in Ghanashyam Mishra and Sons Pvt. Ltd. v. Edelweiss Asset Reconstruction Company Limited applies, allowing the Petitioner to start with a clean slate post-CIRP.2. ISSUE-WISE DETAILED ANALYSISIssue 1: Enforceability of Orders and Notices Post-Resolution Plan Relevant Legal Framework and Precedents: The primary legal framework involves the CGST/MGST Act, 2017, and the Insolvency and Bankruptcy Code, 2016. The precedent case of Ghanashyam Mishra and Sons Pvt. Ltd. v. Edelweiss Asset Reconstruction Company Limited is pivotal, establishing that once a Resolution Plan is sanctioned, the new management is not liable for prior dues. Court's Interpretation and Reasoning: The Court recognized the principle from the Ghanashyam Mishra case, which asserts that a company emerging from CIRP with an approved Resolution Plan is not accountable for past liabilities subsumed under said plan. Key Evidence and Findings: The Petitioner had undergone a CIRP, and the Resolution Plan was approved by the NCLT on 6th February, 2024. This approval is crucial in determining the applicability of the CGST/MGST Act orders and notices. Application of Law to Facts: The Court applied the principle from the Ghanashyam Mishra case to the Petitioner's situation, finding that the orders and notices for periods before the Resolution Plan's sanction should not be enforced against the Petitioner. Treatment of Competing Arguments: The Respondents sought time to file a reply, indicating potential arguments against the Petitioner's position. However, the Court found the Petitioner's case sufficiently strong to warrant interim relief. Conclusions: The Court concluded that there is a prima facie case for staying the enforcement of the orders and notices against the Petitioner, pending further proceedings.3. SIGNIFICANT HOLDINGS Verbatim Quotes of Crucial Legal Reasoning: The Court noted, 'at least prima facie, the Hon'ble Supreme Court in the case of Ghanashyam Mishra has framed a principle that when the new management takes over a Company under a Resolution Plan, it starts with the clean slate and would not be liable for the past dues of the Company and which were incurred prior to the sanction of the Resolution Plan.' Core Principles Established: The principle that a company, post-CIRP and with an NCLT-approved Resolution Plan, is not liable for past dues is reaffirmed. This supports the notion of a 'clean slate' for new management. Final Determinations on Each Issue: The Court granted an ad-interim relief staying the impugned orders and notices until further orders, indicating a strong preliminary case in favor of the Petitioner.