NCLT (PB) New Delhi (24.05.2019) in Oriental Bank of Commerce vs. M/s. Allied Strips Ltd &Ors. [Item No.111 (IB)-46(PB)/2018] set aside the Income Tax Department’s notice to the CD issued during moratorium, as being violative of Sec. 14(1)(a), IBC.
Despite repeated intimation the aforesaid orders have been passed which is wholly without jurisdiction and competence of the Assistant Commissioner. It clearly contravenes the provisions of Section 14(1)(a) and the law declared by Hon’ble The Supreme Court in Hotel Gaudavan’s case (supra) as well as in the case of Monnet Ispat and Energy (supra).
As a sequel to the above discussion the application is allowed. The three adverse orders passed against the corporate debtor on 30.03.2019 are hereby set aside as those orders were proceeded with and finally passed during the Corporate Insolvency Resolution Process period.”
Facts of the case, in brief; An application u/s 7, IBC was filed against the CD.
1. On 16th March 2018 AA allowed the insolvency application and moratorium U/s 14, IBC was thus imposed.
2. Subsequently, a notice was sent by the Assistant Commissioner of Income Tax (ACIT) to the RP intimating the pendency of assessment proceedings against CD.
3. A reply to the said notice was sent by the RP informing on the pendency of CIRP proceedings against CD, as also the moratorium imposed on CD by virtue of Sec. 14.
4. The income-tax authorities, however, persisted with their proceedings and sent show-cause notices to the CD,
5. Replies whereof were sent by the RP pleading that such proceedings and notices are in clear violation of the moratorium.
6. However the Income Tax Authorities went ahead and passed three penalty orders on 30.03.2019.
7. RP filed application before Hon’ble NCLT impugning the validity of IT notices issued to the CD and penalty orders, relying on Hon’ble SC judgments delivered in Pr. Commissioner of Income Tax vs. Monnet Ispat and Energy Ltd. and Alchemist Asset Reconstruction Company Ltd. vs. M/s Hotel Gaudavan (P) Ltd. concerning application of Sec. 14 and Sec. 238, IBC.
8. The NCLT (Principal Bench), allowed the application (IB-46(PB)/2018) filed by the RP inter alia seeking stay of proceedings initiated against the CD (under Income Tax Act, 1961), & upheld the settled position of law as regards application of Sec. 14 (r/w Sec. 238, IBC).
9. The NCLT, thus concluded, that in the facts and circumstances of the case, issuance of Income Tax notice against the CD during the moratorium clearly contravenes the provisions of Sec 14(1)(a) as well as law declared by the Hon’ble SC in Hotel Gaudavan’s case (infra) and Monnet Ispat and Energy (infra). Upholding RP’s contentions,
Excerpts of the order;
This is an application filed by the Resolution Professional with a prayer to stay the proceedings initiated under the Income tax Act, 1961 (for brevity I-T Act) which have been continued by the non applicant-respondent Assistant Commissioner of Income Tax (ACIT). A further prayer has been made to set aside order dated 30.03.2019 levying penalty under Section 271(1) (c) of the Income Tax Act, 1961 passed against the corporate debtor-Allied Strips Ltd. during the period of moratorium.
Having heard the Ld. Counsel for the parties we are of the considered view that once it was brought to the notice of the Assistant Commissioner-non applicant that moratorium was in operation then in terms of Section 14(1)(a) of the Insolvency & Bankruptcy Code no proceedings could have been continued as is expressly provided Section 14(1)(a) itself. It would be profitable to refer to para 29 of the admission order dated 16.03.2018 wherein Section 14(1)(a) has been extracted and the same reads as under:
“The consequences of imposing the moratorium flows from the provisions of Section 14(1) (a), (b) (c) & (d) and thus the following prohibitions are imposed:
(a) The institution of suits or continuation of pending suits or proceedings against the corporate debtor including execution of any judgment, decree or order in any court of law, tribunal, arbitration panel or other authority;"
A perusal of the aforesaid para would make it patent that continuation of proceedings against the corporate debtor including the proceedings before any other authority is prohibited. Moreover in the judgment rendered in Hotel Gaudavan's case (Supra) the following pertinent observations have been made by Hon'ble the Supreme Court which reads as under:
“5) The mandate of the new Insolvency Code is that the moment an insolvency petition is admitted, the moratorium that comes into effect under Section 14(1)(a) expressly interdicts institution or continuation of pending suits or proceedings against Corporate Debtors.
6) This being the case, we are surprised that an arbitration proceeding has been purported to be started after the imposition of the said moratorium and appeals under Section 37 of the Arbitration Act are being entertained. Therefore, we set aside the order of the District Judge dated 06.07.2017 and further state that the effect of Section 14(1)(a) is that the arbitration that has been instituted after the aforesaid moratorium is non est in law.
7) Mr. Jayant Bhushan, learned Senior Counsel, also informs us that criminal proceeding being F.I.R. No. 0605 dated 06.08.2017 has been taken in a desperate attempt to see that the IRP does not continue with the proceedings under the Insolvency Code which are strictly time bound. We quash this proceeding.
8) As a result, the appeal is allowed and the steps that have to be taken under the Insolvency Code will continue unimpeded by any order of any other Court."
It is thus patent that no proceedings by any authority could have been continued or initiated after 16.03.2018 when the moratorium comes into effect. However, despite the intimation sent at various stages by the Resolution Professional bringing to the notice of the Assistant Commissioner - non applicant the operation of the moratorium under section 14(1)(a), the Assistant Commissioner continued proceedings which resulted in passing three penalty orders in respect of three separate assessment years under Section 271(1)(c) of the Income Tax Act on 30.03.2019. It is appropriate to mention that when the notices have been issued by the Assistant Commissioner on various dates from 17.10.2018 which as has already been notice in the preceding para. Thereafter , the Resolution Professional has been repeatedly intimating the Assistant Commissioner-non applicant about the moratorium. Despite repeated intimation the aforesaid orders have been passed which is wholly without jurisdiction and competence of the Assistant Commissioner. It clearly contravenes the provisions of Section 14(1)(a) and the law declared by Hon’ble The Supreme Court in Hotel Gaudavan’s case (supra) as well as in the case of Monnet Ispat and Energy (supra).
As a sequel to the above discussion the application is allowed. The three adverse orders passed against the corporate debtor on 30.03.2019 are hereby set aside as those orders were proceeded with and finally passed during the Corporate Insolvency Resolution Process period.”
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