TaxTMI 
TaxTMI 
2018 (8) TMI 62
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....x Recovery Officer (Central), Income-tax Department, Hyderabad, the first respondent herein. In the affidavit filed in support of the writ petition, the petitioner company stated that pursuant to the order passed by the National Company Law Tribunal (NCLT), Hyderabad, a liquidator was appointed to liquidate VNR Infrastructures Limited, Hyderabad, under the provisions of the Code. The assets of the said company were pooled to form a liquidated estate and all such assets were sought to be sold by e-auction. A notice was published in newspapers on 29.12.2017 in this regard, notifying the e-auction sale date as 31.01.2018. The petitioner company participated in the said auction and was declared the highest bidder at Rs. 11,55,00,000/- for the commercial/ residential building, along with land, situated at H.No.8-2-322/D, Road No.3, Banjara Hills, Hyderabad. The liquidator, the fifth respondent herein, issued letter dated 31.01.2018 confirming the sale in favour of the petitioner company and called upon it to deposit the sum of Rs. 2,00,75,000/-, inclusive of the Earnest Money Deposit (EMD) of Rs. 88,00,000/- already paid, towards 25% of the bid amount within 24 hours. The petitioner ....
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.... is bound to comply with its part of the sale transaction. However, in the event such deposit is made, the fifth respondent shall not disburse any of the amounts paid by the petitioner company pending further orders. Thereafter, by order dated 30.04.2018, this Court took note of the fact that the petitioner company had deposited the balance payable by it towards the sale consideration and directed the fourth respondent to register the sale deed. However, in view of the fact that the question raised in the writ petition was yet to be decided, this Court directed the fourth respondent to record that the registration of the sale deed would be subject to final orders in this writ petition. This Court also made it clear that the attachment would continue till the disposal of the writ petition, irrespective of the registration of the sale deed. The authorized representative of the fifth respondent filed a counter. Therein, he stated that the fifth respondent was appointed as a liquidator for VNR Infrastructures Limited, vide order dated 21.09.2017 passed by the NCLT, Hyderabad Bench, and took over the affairs of the said company. Pursuant to the valuation of the assets of the compa....
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....respondent issued sale letter dated 10.02.2018 to the petitioner company, whereby it was called upon to pay the balance amount of Rs. 8,66,25,000/- within fifteen days. He also admitted receipt of the petitioner companys letter dated 21.02.2018 to get the attachment withdrawn and issuance of the letter dated 22.02.2018 by the fifth respondent reiterating the direction to pay the balance sale consideration within the time stipulated. He further admitted extension of the time limit for payment of the balance sale consideration till 07.03.2018 and again till 16.03.2018. He acknowledged that pursuant to the order dated 15.03.2018 passed by this Court, the petitioner company deposited the balance sale consideration on 16.03.2018, which was kept aside as directed by this Court. Perusal of the letter dated 28.10.2016 addressed by the first respondent to the fourth respondent reflects that the first respondent stated that the property detailed therein, pertaining to VNR Infrastructures Limited, had been attached by order dated 27.10.2016 and the fourth respondent was requested not to register any document transferring the said property. In his letter dated 08.01.2018, the fifth respo....
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....serted that the petitioner company had not made out any case for interference in so far as he was concerned and prayed for dismissal of the writ petition. Heard Mr.S.Niranjan Reddy, learned senior counsel, and Mr.Vadeendra Joshi, learned counsel, appearing for Ms.Rubaina S. Khatoon, learned counsel for the petitioner company, Mrs.M.Kiranmayee, learned senior standing counsel for the Revenue appearing for the first respondent, and Ms.Ch.Vedavani, learned counsel for the fifth respondent. The case essentially turns upon the construction and interpretation of the provisions of the Code in juxtaposition to the Act of 1961. The Statement of Objects and Reasons of the Code indicates that the Legislature was of the opinion that the existing framework for insolvency and bankruptcy was inadequate and ineffective and resulted in undue delays in resolution. The Code was proposed with the objective of consolidating and amending the laws relating to reorganization and insolvency resolution of corporate persons, partnership firms and individuals in a time bound manner for maximization of the value of assets of such persons, to promote entrepreneurship, availability of credit and balance....
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....ny law for the time being in force and payable to the Central Government or any State Government or any local authority. However, by the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2018, published in the Gazette of India dated 06.06.2018, Section 5(21) of the Code was amended by substituting the word payment for the word repayment. Therefore, operational debt, as defined under Section 5(21) of the Code, presently means a claim in respect of the provision of goods or services including employment or a debt in respect of the payment of dues arising under any law for the time being in force and payable to the Central Government, any State Government or any Local Authority. Chapter II in Part II is titled Corporate Insolvency Resolution Process. Section 6 therein states that where any corporate debtor commits a default, a financial creditor, an operational creditor or the corporate debtor itself may initiate the corporate insolvency resolution process in respect of such corporate debtor in the manner provided in Chapter II. Section 7 deals with Initiation of corporate insolvency resolution process by a financial creditor and sub-section (6) thereof stipulates that the corpora....
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....be called the liquidation estate in relation to the corporate debtor. Section 36(3) is relevant for the purposes of this case and reads as under: (3) Subject to sub-section (4), the liquidation estate shall comprise all liquidation estate assets which shall include the following:-- (a) any assets over which the corporate debtor has ownership rights, including all rights and interests therein as evidenced in the balance sheet of the corporate debtor or an information utility or records in the registry or any depository recording securities of the corporate debtor or by any other means as may be specified by the Board, including shares held in any subsidiary of the corporate debtor; (b) assets that may or may not be in possession of the corporate debtor including but not limited to encumbered assets; (c) tangible assets, whether movable or immovable; (d) intangible assets including but not limited to intellectual property, securities (including shares held in a subsidiary of the corporate debtor) and financial instruments, insurance policies, contractual rights; (e) assets subject to the determination of ownership by the court or ....
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....unt due to the Central Government and the State Government including the amount to be received on account of the Consolidated Fund of India and the Consolidated Fund of a State, if any, in respect of the whole or any part of the period of two years preceding the liquidation commencement date; (ii) debts owed to a secured creditor for any amount unpaid following the enforcement of security interest; (f) any remaining debts and dues; (g) preference shareholders, if any; and (h) equity shareholders or partners, as the case may be. (2) Any contractual arrangements between recipients under sub- section (1) with equal ranking, if disrupting the order of priority under that sub-section shall be disregarded by the liquidator. (3) The fees payable to the liquidator shall be deducted proportionately from the proceeds payable to each class of recipients under sub-section (1), and the proceeds to the relevant recipient shall be distributed after such deduction. Explanation. For the purpose of this section (i) it is hereby clarified that at each stage of the distribution of proceeds in respect of a class of recipients that ....
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....nd when any tax, interest, penalty, fine or any other sum is payable in consequence of any order passed under the Act of 1961 and the Authorized Officer is empowered to serve upon the assessee a notice of demand in the prescribed form specifying the sum so payable. Section 220(4) stipulates that if the amount is not paid within the time limit under sub-section (1) or extended under sub- section (3), as the case may be, at the place and to the person mentioned in the said notice, the assessee shall be deemed to be in default. Section 221 provides for penalty being levied when an assessee is in default or is deemed to be in default in making payment of tax. Section 222 provides for issuance of a certificate to the Tax Recovery Officer. Section 222(1) states that when an assessee is in default or is deemed to be in default in making payment of tax, the Tax Recovery Officer may draw up under his signature a statement in the prescribed form specifying the amount of arrears due from the assessee and shall proceed to recover from such assessee the amount specified in the certificate by one or more of the modes mentioned in accordance with the Rules laid down in the Second Schedule. The mo....
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....efaulter. Attachment and sale of movable property is dealt with in Part II, while attachment and sale of immovable property is dealt with under Part III. Rule 48 in Part III states that attachment of the immovable property of the defaulter shall be made by an order prohibiting the defaulter from transferring or charging the property in any way and prohibiting all persons from taking any benefit under such transfer or charge. Rule 51 states that where an immovable property is attached under the Second Schedule, the attachment shall relate back to and take effect from the date on which the notice to pay the arrears, issued under the Second Schedule, was served upon the defaulter. It is also relevant to note that Section 178 of the Act of 1961 is titled Company in liquidation. Under sub-section (1) thereof, the liquidator of a company which is being wound up, or a person who is appointed as a Receiver of the assets of such company has to give notice of his appointment as such to the Assessing Officer of the said company. Sub- section (2) provides that the Assessing Officer shall make inquiries and notify the liquidator within three months from the date on which he receives the noti....
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....onal attachment shall protect the Revenue in certain cases. Sections 281B(1) and (2) provide that during the pendency of any proceeding for the assessment of any income, if the Assessing Officer is of the opinion that for the purpose of protecting the interests of the Revenue, it is necessary so to do, he may, with the previous approval of the designated authorities thereunder, by order in writing, attach provisionally any property belonging to the assessee in the manner provided in the Second Schedule. Such provisional attachment shall cease to have effect after the expiry of a period of six months from the date of the order of attachment. In the light of the aforestated statutory schemes obtaining under the Code and the Act of 1961 respectively, it is clear that the Income-tax Department does not enjoy the status of a secured creditor, on par with a secured creditor covered by a mortgage or other security interest, who can avail the provisions of Section 52 of the Code. At best, it can only claim a charge under the attachment order, in terms of Section 281 of the Act of 1961. Reference, in this regard, may be made to ANANTA MILLS LTD. (IN LIQUIDATION) V/s. CITY DEPUTY COLLE....
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....partment can no longer claim a priority in respect of clearance of tax dues of the said company, as provided under Sections 178(2) and (3) of the Act of 1961. In the context of liquidation of an assessee company under the provisions of the Code, the Income-tax Department, not being a secured creditor, must necessarily take recourse to distribution of the liquidation assets as per Section 53 of the Code. Section 53(1) provides the order of priority for such distribution and any amount due to the Central Government and the State Government including the amount to be received on account of the Consolidated Fund of India and the Consolidated Fund of a State in respect of the whole or any part of the period of two years preceding the liquidation commencement date comes fifth in the order of priority under Clause (e) thereof. Significantly, Article 266 of the Constitution provides that all revenues received by the Government of India, all loans raised by that Government by the issue of treasury bills, loans or ways and means advances and all moneys received by that Government in repayment of loans shall form one consolidated fund to be entitled the Consolidated Fund of India, and all ....
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.... of the Act of 1961 by Section 247 of the Code read with the Third Schedule appended thereto, the whole of Section 178 has no application to liquidation proceedings initiated under the Code. Therefore, if the only source for treating the Income-tax Department as a secured creditor is the language used in Sections 178(3) and (4) of the Act of 1961, the said provisions stand excluded when it comes to the liquidation proceedings under the Code and such status cannot be conferred upon the Income-tax Department and it would necessarily have to take its place in the order of priority mentioned in Section 53(1) of the Code. This judgment is therefore of no avail to the Revenue. Mrs.M.Kiranmayee, learned counsel, also placed reliance on CENTRAL BANK OF INDIA V/s. STATE OF KERALA (2009) 4 SCC 94 . This was a case arising in the context of whether the dues of a secured creditor under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (the SARFAESI Act) would take priority over the dues of the commercial taxes department of the State of Kerala. The observations made by the Supreme Court in this regard were relatable to the SARFAESI Act ....