Summary
Income tax demands for assessment years 2012-13 and 2013-14 raised against the corporate debtor after the NCLT approved the resolution plan, where no claim for those years had been filed before the Resolution Professional, are invalid and unenforceable. Under Section 31(1) of the IBC as explained in Ghanashyam Mishra, statutory dues not forming part of an approved plan stand extinguished; the NCLAT erred in brushing aside that binding decision and the NCLT erred in dismissing the application as frivolous without reasons and with costs.
Issues
- Whether income tax demands for assessment years 2012-13 and 2013-14, raised after approval of the resolution plan and never claimed before the Resolution Professional, survive the approval of the plan under Section 31(1) of the IBC.
- Whether paragraph 44 of the NCLT's approval order, leaving reliefs and concessions on statutory dues to the government departments, covered these later demands.
- Whether the NCLAT could decline to follow a binding decision of the Supreme Court on the ground that it had not been cited before the NCLT, and whether the NCLT's unreasoned dismissal with costs was sustainable.
Provisions considered
- Section 31(1), Insolvency and Bankruptcy Code, 2016Once the adjudicating authority approves a resolution plan it binds the corporate debtor, its creditors including the Central Government and authorities to whom statutory dues are owed, and all stakeholders; the 2019 amendment adding these words is clarificatory. Applying the declaration of law in Ghanashyam Mishra (paras 102.1 to 102.3), the income tax dues for the two assessment years, not being part of the approved plan, stood extinguished and no proceedings for them could continue. (¶¶ 7, 8, 11, 14)
- Sections 61 and 62, Insolvency and Bankruptcy Code, 2016The Monitoring Professional's application was dismissed by the NCLT, the appeal under Section 61 was dismissed by the NCLAT, and the present appeal lay to the Supreme Court under Section 62. (¶¶ 1, 2)
Held
- Statutory dues, including income tax owed to the Central Government, that are not part of the approved resolution plan stand extinguished on approval under Section 31(1) of the IBC, and no proceedings for such dues for the period before approval can be continued. The demands for assessment years 2012-13 and 2013-14, for which no claim was made before the Resolution Professional, therefore stood extinguished and the approved plan binds the Income Tax Department. (¶¶ 7, 8, 11, 14)
- Paragraph 44 of the NCLT's approval order, which left reliefs and concessions sought in respect of statutory dues to the government departments, related to the contingent liabilities listed in clause 2(g) of the plan (which covered only the assessment year 2014-15); it had no relevance to income tax demands raised after approval for years not shown as contingent liabilities. (¶¶ 5, 6)
- The NCLAT's refusal to consider a binding Supreme Court decision on the ground that it was not cited before the NCLT, or because the appellants had not challenged the resolution plan, was perverse; the binding precedent and the legal effect of plan approval could not be ignored. (¶ 9)
- Once a resolution plan is approved, no belated claim not made earlier can be included in it; entertaining such demands would deny the successful resolution applicant the clean slate on which it is to restart the corporate debtor's business (following Essar Steel, para 107), and would operate as a roadblock to implementing the plan. (¶¶ 12, 13)
- The NCLT's approach of dismissing the application as frivolous without considering the merits or recording reasons, and imposing costs of Rs. 1 lakh, could not be approved; the order of costs was unwarranted. (¶ 10)
Result
Appeal allowed; orders of the NCLT dated 17 September 2020 and of the NCLAT dated 25 November 2021 set aside; the Income Tax Department's demands against the corporate debtor for assessment years 2012-13 and 2013-14 declared invalid and unenforceable.