2025 (6) TMI 1948 - AT - Income Tax

Directors lose standing to file tax appeals after liquidator appointment without proper Form 36 verification

The ITAT dismissed appeals filed by both the assessee company and Revenue during ongoing liquidation proceedings. The company's appeals were held not ... Locus standi of directors to file appeal during liquidation process - maintainability of the appeals filed by the assessee company under liquidation - NCLT initiated Corporate Insolvency Resolution Process against this company which led to its liquidation and liquidator was appointed - HELD THAT:- As present appeals directed before us are signed by some directors of the company. On appointment of liquidator, those directors do not have any locus standi to file and pursue these appeals. The Liquidator has though issued Letter of Authority in favour of the counsel, however, has not replaced Form 36 duly signed by him. This is not done despite liquidation process going on for almost 5 years. In view of this, these appeals filed by the assessee before us are dismissed as not properly verified and also not substituting the form no 36 duly signed and verified by the liquidator. Thus, the appeals filed by assessee are not maintainable and hence dismissed. The Liquidator is granted liberty that if he wants to continue the above proceedings involved in these appeals, fresh Form 36 is required to be filed along with petition for condonation of delay that why it has not been done for such a long time. The coordinate Bench may take a decision at that time in accordance with law regarding recall of this order. ISSUES PRESENTED AND CONSIDERED 1. Whether directors of a corporate assessee retain locus standi to file and pursue appeals before the Tribunal after initiation of Corporate Insolvency Resolution Process and appointment of a liquidator. 2. Whether an appeal signed and presented by directors (instead of the liquidator) is properly verified and maintainable where the liquidator has not executed and filed the prescribed authorization (Form 36) despite being in office. 3. Consequences of non-substitution of Form 36 by the liquidator and failure to have appeals prosecuted by the liquidator during ongoing liquidation proceedings. 4. Whether appeals filed by the Revenue become infructuous where the assessee is in liquidation and there is no reasonable prospect of recovery of tax demand from the insolvent estate. 5. Conditions under which the liquidator or Revenue may be permitted to restore or continue dismissed appeals (including requirements relating to condonation of delay and proof of claim before the NCLT). ISSUE-WISE DETAILED ANALYSIS Issue 1: Locus standi of directors after appointment of liquidator Legal framework: Under insolvency and corporate law principles, on initiation of the Corporate Insolvency Resolution Process and eventual liquidation, the power to manage the corporate debtor's affairs vests in the insolvency practitioner/liquidator; the liquidator represents the company for liquidation matters and related proceedings before judicial/adjudicatory bodies. Precedent Treatment: No specific precedents were cited or applied by the Tribunal in the decision; the Court proceeded on established insolvency principles regarding vesting of control in the liquidator. Interpretation and reasoning: The Court reasoned that once a liquidator was appointed and the company entered liquidation, the directors ceased to have locus standi to file and pursue appellate proceedings on behalf of the company. The appellants' appeals were signed and presented by directors despite the liquidator being in office and acting on liquidation matters; this created a disconnect between who held the authority to litigate and who had formally executed the statutory authorization. Ratio vs. Obiter: Ratio - Directors lack locus standi to file and pursue appeals on behalf of a company in liquidation; authority lies with the liquidator. (This forms part of the operative decision dismissing the appeals.) Conclusions: Appeals submitted and prosecuted by directors after liquidation are not maintainable for want of authority; such filings are to be dismissed unless proper substitution or authorization by the liquidator is made. Issue 2: Requirement of Form 36 and verification for maintenance of appeals Legal framework: Procedural provisions require that an appeal be properly verified and accompanied by prescribed authorizations/mandates (here, Form 36) enabling representation; where corporate control has passed to a liquidator, the liquidator's execution of Form 36 or equivalent substitution is required. Precedent Treatment: No prior decisions were applied; the Court relied on procedural compliance and the need for correct authorized representation. Interpretation and reasoning: The Tribunal observed that although the liquidator had issued a Letter of Authority to counsel, he had not replaced or filed a duly signed Form 36. The absence of a Form 36 signed by the liquidator meant the appellate filings were not properly verified or authorized in form and substance. The lapse persisted despite a significant passage of time since liquidation commenced, undermining the appeals' procedural validity. Ratio vs. Obiter: Ratio - Proper verification and execution of the prescribed authorization (Form 36) by the liquidator is a mandatory condition for maintenance of appeals by a company in liquidation; absence thereof warrants dismissal. (Operative.) Conclusions: Appeals not supported by a Form 36 signed by the liquidator are not maintainable and must be dismissed for want of proper verification and authorization. Issue 3: Consequences and remedial liberty when Form 36 is not substituted Legal framework: Courts/Tribunals have discretion to dismiss unverified or improperly authorized appeals but may grant remedial liberty for regularization, subject to conditions such as filing of the proper authorization and condonation of delay. Precedent Treatment: None cited; the Court exercised discretion consistent with procedural fairness principles. Interpretation and reasoning: The Tribunal dismissed the appeals as not properly verified but granted liberty to the liquidator to file a fresh Form 36 and apply for condonation of delay explaining the long delay in substitution. The Tribunal noted that a coordinate Bench may reconsider or recall the dismissal if the liquidator files the requisite documentation and an application for condonation, to be considered in accordance with law. Ratio vs. Obiter: Ratio - Dismissal for procedural noncompliance is appropriate, but remedial relief (restoration) may be permitted if the liquidator files the required Form 36 and seeks condonation with satisfactory explanation. (Operative/interlocutory governing restoration.) Conclusions: Dismissal without prejudice - liquidator may move to restore appeals by filing Form 36 and a petition for condonation of delay; restoration is discretionary and subject to legal scrutiny by the Bench hearing such an application. Issue 4: Infructuousness of Revenue appeals where assessee is in liquidation and no recovery prospect exists Legal framework: The viability of prosecuting revenue recovery litigation can be affected by insolvency proceedings; where there is no realistic prospect of recovery of tax or monetary demands from the insolvent estate, appeals may be treated as infructuous. Precedent Treatment: No precedents were invoked; the Tribunal applied practical and purposive considerations about effective enforcement and utility of litigation. Interpretation and reasoning: The Tribunal observed that the company's assets were being sold under liquidation and that even if the Revenue succeeded in its appeals, there was no realistic prospect of recovering any tax from the company's assets. On that basis, the Tribunal treated the Revenue's appeals as rendered infructuous and dismissed them accordingly. Ratio vs. Obiter: Ratio - Where liquidation of the assessee renders recovery of any tax demand impossible or highly unlikely, Revenue appeals may be dismissed as infructuous; however, this is contingent on factual demonstration of non-recoverability. (Operative for dismissal of Revenue appeals in present factual matrix.) Conclusions: Revenue appeals were dismissed as infructuous given the liquidation and absence of recovery prospects; the Revenue may seek restoration only by demonstrating that the claim in respect of the litigation/demand was placed before the NCLT during liquidation. Issue 5: Conditions for restoration by Revenue - proof of claim before NCLT Legal framework: During liquidation, claims against the corporate debtor should be submitted and adjudicated by the insolvency adjudicating authority (NCLT); continuation of external litigation relating to claims may require that the claimant has made its claim in the liquidation process. Precedent Treatment: No authorities cited; the Court articulated a condition linking continuation of appeals to proof of claim in the liquidation process. Interpretation and reasoning: The Tribunal granted liberty to the Revenue to continue with its appeals only if it can show that the claim arising from the litigation/demand was placed before the NCLT during liquidation. This condition is necessary because recovery rights and priorities are determined in liquidation; absent a filed claim, continuation of appellate proceedings may be inappropriate. Ratio vs. Obiter: Ratio - Restoration/continuation of Revenue appeals in respect of a corporate debtor in liquidation is permissible only if the Revenue can demonstrate that it filed the corresponding claim before the insolvency/adjudicating authority; such demonstration is a condition precedent to restoration. (Operative for potential restoration of Revenue appeals.) Conclusions: The Revenue may apply for restoration only upon showing that the claim was lodged before the NCLT at the time of liquidation; the Bench will consider such applications in accordance with law.