Orbit Towers Private Limited vs. Sampurna Suppliers Pvt. Ltd., - When all the rights of the Creditor have been subrogated in favour of the Guarantor/Financial Creditor herein, the Financial Creditor is eligible and entitled to proceed against the Corporate Debtor for recovery of the said dues and file the petition under section 7 of the Code before this Adjudicating Authority or before any other Forum of competent jurisdiction.

NCLT Kolkata (27.06.2022) in Orbit Towers Private Limited vs. Sampurna Suppliers Pvt. Ltd.,  [C.P (IB) No. 2046 /KB/2019) held that;

• The Law is very clear that once the Guarantor/surety discharges the liability of the Principal borrower towards the creditor, all the rights of the Creditor to recover that money would automatically be transferred in favour of the surety/ Guarantor. This is exactly the right of subrogation.

• When all the rights of the Creditor have been subrogated in favour of the Guarantor/Financial Creditor herein, the Financial Creditor is eligible and entitled to proceed against the Corporate Debtor for recovery of the said dues and file the petition under section 7 of the Code before this Adjudicating Authority or before any other Forum of competent jurisdiction.

Excerpts of the order;  

# 1, The Court is convened by video conference today.

# 2. This petition under section 7 of the Insolvency and Bankruptcy Code, 2016 read with Rule 4 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 has been filed by Orbit Towers Private Limited, through its Director namely Mr. Pramod Kumar Eshwa, authorised vide Board Resolution dated 27.09.2019 (Annexure-2) (hereinafter referred to as the Financial Creditor) for initiation of Corporate Insolvency Resolution Process in respect of Sampurna Suppliers Private Limited, having its registered office at 4, Ram Kumar Rakhit Lane, Kolkata- 7000097 (hereinafter referred to as the Corporate Debtor).

# 3. The Financial Creditor /applicant herein submits  in  its  petition that the Corporate Debtor is a company essentially owned, managed and controlled by one Jagdish Sarda, a business associate of  the  Financial Creditor. It is submitted that when the Corporate Debtor was in need of funds for its business, the Corporate Debtor had approached various banks and Financial Institutions for loans and other financial accommodation. While the Indian Bank agreed to grant a loan of Rs.10,00,00,000/- in favour of the Corporate Debtor, it required such loan to be guaranteed and otherwise secured.

# 4.  It is submitted that in view of the business association between the Financial Creditor and the said Jagdish Sarda, the Corporate Debtor approached the Financial Creditor with a request to give a corporate guarantee for such loan in favour of the Indian Bank and also to create an equitable mortgage of the Financial Creditor’s property at 50 A, Prince Anwar Shah Road, Kolkata. As the said Jagdish Sarda had assured the Financial Creditor that the said loan  would  be  repaid  before  completion  of  the project for development of the property at No. 50A,  Prince Anwar Shah  Road, Kolkata and that the Corporate Debtor would obtain release  of  the  title  deeds  of  the said property from the Indian Bank prior thereto to enable commercial exploitation of the developed property, the Financial Creditor agreed to secure, and secured the borrowing of the Corporate Debtor  from  the Indian  Bank both by executing a deed of corporate guarantee and by creating an  equitable mortgage of its property at No.50A, Prince  Anwar  Shah  Road,  Kolkata  which was sanctioned by the Indian Bank  by  its  sanction  letter  dated  January 17,2011.

# 5. It is submitted that the Financial Creditor executed a deed of corporate guarantee in favour of the Indian Bank and also created  an  equitable mortgage by depositing the title deeds thereof. It is submitted that although in terms of its promise and assurance, it was incumbent upon the Corporate Debtor to repay the said loan amount of Rs.10,00,00,000/- along with the accrued interest thereon and to obtain release of the property at 50A, Prince Anwar Shah Road, Kolkata from the Indian Bank well before the completion of the project of the same.The Financial Creditor called upon the Corporate Debtor to forthwith liquidate the dues of the said Bank, so  that  upon obtaining release of the property, conveyances of flats and other spaces thereat could be executed in favour of the buyers but the Corporate Debtor failed and neglected the payment of dues to the said Bank along with interest by ignoring request made by the Financial Creditor. The Corporate Debtor, therefore, became obliged to repay to the Financial Creditor, the said sum of Rs.8,45,19,907/- together with interest. Thereafter, upon  several  requests, the Corporate Debtor however paid a sum of Rs.2,60,00,000/-  to the Financial Creditor towards part discharge of its liability and a sum of Rs.5,85,19,907/- remained due and payable.

# 6. It is submitted that the Corporate  Debtor  acknowledged its  liability for the said sum to the Financial Creditor by signing balance confirmation of statement, on and from the year 01.04.2015 to 31.03.2016. In further admission and acknowledgement of its indebtedness to the Financial Creditor, the Corporate Debtor made several part payments between 11.05.2016 till 04.10.2016.

# 7. It is submitted that the Corporate Debtor has defaulted in payment of the debt due to the Financial Creditor despite repeated requests, reminders and demands for pay payment of the same. It is submitted that as the last payment made by the Corporate Debtor was  on  October 4, 2016, the Financial Creditor treats this date as the date of default for the purpose of present application.

# 8. On being served with the notice of the court, the Corporate Debtor has filed its reply affidavit.In the reply affidavit filed by the Corporate Debtor through one of its Directors, namely, Tarur Raman Venugopal, it is submitted that the present petition filed by the Financial Creditor under section 7 of the IBC is not maintainable and deserves to be dismissed. It is submitted that it would be evident that the Financial Creditor maintains the application based on payments made by the alleged Financial Creditor as a guarantor to Indian Bank on behalf of the Corporate Debtor, the principal borrower of Indian Bank.

# 9. It is submitted by the Corporate Debtor that the dues of the Indian Bank were in respect of the Corporate Debtor herein and one Jagrati Trade Services Private Limited, the admitted business associate of the alleged Financial Creditor herein.

# 10. It is submitted that the Financial Creditor as a guarantor claimed to have discharged the debt of both the Corporate Debtor and the Jagrati Trade Services Private Limited by allegedly paying to Indian Bank, a total sum of Rs.8,45,19,907/-, no dates have been mentioned in the said application as to when the Financial Creditor has paid to Indian Bank the sum of Rs. 8,45,19, 907/- allegedly towards the discharge of the dues of the Corporate Debtor. It is submitted that it has been incorrectly stated that the Financial Creditor has paid to Indian Bank towards the discharge of the dues of the Corporate Debtor.

# 11. It is incorrect and false that the Corporate Debtor is obliged to pay to the alleged Financial Creditor, the aforesaid sum of Rs.8,45,19,907/- only and that the Corporate Debtor paid out of the said sum, a sum of Rs.3.90 Crores towards part discharge of its liability and failed and neglected to pay Rs.4,55,19,907/- . It is stated that no particulars of such payments have been disclosed in the said application. The Corporate Debtor further submits that from the documents appended to the said application, it would be evident that the Financial Creditor stood a guarantor towards the dues of the corporate debtor herein and Jagrati Trade services Private Limited. What has been paid by the Financial Creditor to Indian Bank on behalf of the Corporate Debtor was only a sum of Rs.3,20,26,000/- and not the sum of Rs.8,45,19,907/-

# 12. The Corporate Debtor further submits that the last payment was allegedly received by the Financial Creditor on 4th October, 2016 but the present applicant has been filed on November 28, 2019. Even if it is assumed that the Financial Creditor has a cause of action to maintain the said application, such application is, otherwise, ex-facie barred by the laws of limitation and the said application liable to be dismissed on the said ground.

# 13. It is  submitted that  the  alleged  debt  claimed  by  the Financial  Creditor is not a  “financial  debt”  within  the  meaning of  Section  5(8) of  the Code  and the applicant is also not  a  Financial  Creditor within  the  meaning  of  Section 5(7) of the Code and, therefore, the present proceedings are liable to  be dismissed.

# 14. It is submitted that the Corporate Debtor has fully discharged its liability by admittedly paying off Rs.3,90,00,000/- to the Financial  Creditor and admittedly the last payment was made on 4th October, 2016 i.e three years prior to the filing of the present application and there is nothing due and payable by the Corporate Debtor to the alleged Financial Creditor.

# 15. The Corporate Debtor has further  submitted  that  the  corporate guarantee which the Financial  Creditor  had  given,  was  extended  to  the creditor facilities sanctioned by the Indian Bank  to  Jagrati  Trade  Services Private Limited as is evident from the letter dated 7th May,2014 issued by the Indian Bank ( page 62 of the petition). Therefore, the purported attempt of the Financial Creditor to recover the dues payable by the Jagrati Trade Services Private Limited from the Corporate Debtor herein is wholly unjustified, mischievous and malafide.

# 16. It is submitted that there is no  default  within  the  meaning  of  sub- section (2) of Section 7 of the Code and therefore the Financial Creditor is not entitled to maintain the present proceedings against the Corporate Debtor.

# 17. In the Rejoinder also the Financial Creditor has given full details of the amount deposited by it with the Indian Bank. The  said  schedule containing the particulars of such payments is reproduced as under:-

SCHEDULE OF PAYMENTS MADE TO INDIAN BANK, STRAND ROAD BRANCH

S.. No.	Date	Amount
1.	16.08.2011	10,90,000/-
2.	26.09.2011	4,30,000/-
3.	05.12.2011	2,15,000/-
4.	10.02.2012	11,90,000/-
5.	22.02.2012	9,75,000/-
6.	25.06.2012	10,48,000/-
7.	21.07.2012	35,70,000/-
8.	12.09.2012	10,14,618/-
9.	15.06.2013	45,00,000/-
10.	11.07.2013	43,90,000/-
11.	11.04.2014	29,20,000/-
12.	22.07.2014	1,33,90,167/-
13.	22.07.2014	19,50,000/-
14.	23.08.2014	1,00,00,000/-
15.	27.08.2014	20,00,000/-
16.	04.10.2014	4,00,000/-
17.	04.10.2014	40,00,000/-
18.	17.10.2014	56,79,029.51
19.	17.10.2014	7,46,970.49
20.	31.12.2014	1,50,00,000/-
21.	31.12.2014	2,00,000/-
22	18.12.2015	36,00,000/-
23	18.12.2015	62,11,122/-
	Total:	8,45,19,907/-

 

# 18. The Financial Creditor has proposed the name of Mr. Sudipta  Ghosh, to act as an IRP having Registration No. IBBI/IPA-001/IP-P00484/2017- 18/10872, who has consented vide his affidavit and Form-2, and submitted that he has agreed to accept the appointment as IRP if an order admitting the present application is passed by this Adjudicating Authority. He has further submitted that no disciplinary proceedings are pending against him with the Board or Institute of Insolvency Professionals of ICAI.

 

# 19. The petition is otherwise complete in all respects.

 

# 20. Now, interesting question of law has arisen in this matter, where the liability of the principal borrower (Corporate Debtor herein) has been discharged by the Guarantor (Financial Creditor herein). Sections 140  and 141 of the Indian Contracts Act, 1872 talk of “right of subrogation”. It is the substitution of another person in place of the Creditor, so that the person substituted will succeed to all the rights of the creditor with reference to the debt. The guarantor’s right to be placed in the creditor’s position on the discharge of the principal debtor’s obligation, to the extent that the Guarantor’s property or funds have been used to satisfy the Creditor’s claim and to effect such discharge is called the Guarantor’s right of subrogation. The Guarantor who performed the obligations of the Principal Debtor which are subject to his guarantee is entitled to stand in the shoes of the Creditor to enjoy all the rights that the Creditor has against the Principal Debtor. Section 140 provides that rights of surety of payment or performance where a debt has become due on default of the  Principal Debtor to  perform, the surety upon making payment or performance of all that, is eligible for and is invested with all the rights which the Creditor had against the Principal Debtor. The Creditor had the rights to sue the Principal Debtor. The Guarantor may therefore, sue the Principal Debtor having got and invested with all rights of the Creditor. Section 141 of the Indian Contract Act,1872 further provides that the surety is entitled to the benefit of every security which the creditor has against the Principal Debtor, at the time when the contract of surety-ship is entered into, whether the surety knows of the existence of such security or not and if the creditor loses, or without the consent of the surety, parts with such security, the surety is discharged to the extent of the value of  the security.

# 21.  In the present case, the Corporate Debtor had borrowed  the  aforesaid sum, admittedly, from the Indian Bank for which, the Financial Creditor stood surety for this Corporate Debtor and  once the amount claimed by  the Indian Bank had not  been paid by  the Corporate  Debtor,  the surety  had to liquidate and discharge the liability of the Corporate Debtor towards the Indian Bank. Therefore, under the provisions of the Indian Contract Act, 1872, all the rights of the then Creditor i.e.  the  Indian  Bank,  would  automatically  become  the rights of the surety (Financial Creditor herein). There can be no doubt that the amount has admittedly been paid by the Financial Creditor on behalf of the principal debtor/Corporate Debtor, to Indian Bank.

# 22. Now the question is when the surety has repaid the amount of financial debt owed by the Corporate Debtor to the Indian Bank,  would  it  make  the surety, a “Financial Creditor”, eligible for proceeding against the  Corporate Debtor (the  Principal Borrower) without  there being any agreement  between the two.

# 23. To our mind, any agreement of guarantee between the Indian Bank and the Guarantor is sufficient for the purpose of bestowing all the rights of the Bank/creditor upon the Financial Creditor herein once the Financial Creditor has discharged all the liability of the Corporate Debtor towards Indian Bank. There may or may not be any agreement between the Financial Creditor and the Corporate Debtor. It does not make any difference at all. The Law is very clear that once the Guarantor/surety discharges the liability of the Principal borrower towards the creditor, all the rights of the Creditor to recover that money would automatically be transferred in favour of the surety/ Guarantor. This is exactly the right of subrogation. The right of subrogation provides that all the rights of the creditor with reference to the debt or obligation of the principal debtor that has been discharged by the surety/Guarantor would go to the surety. The Guarantor, who has performed the obligations of the principal debtor which are the subject of his guarantee, is entitled to stand in the shoes of the creditor and to enjoy all the rights that the creditor had as against the principal debtor.

# 24. In this matter, the Financial Creditor who executed an agreement of guarantee with the Indian Bank for the financial obligations and loan facilities granted to the borrower/ the Corporate Debtor herein, is fully empowered to proceed against the Corporate Debtor, as the Financial Creditor.

# 25. We have gone through all the pleadings and the documents placed on record by the Financial Creditor and the Corporate Debtor. In this matter admittedly the amount of debt has been repaid by the Financial Creditor to Indian Bank in its capacity as Guarantor for and on behalf of the Corporate Debtor, which has put the Guarantor in the shoes of the Creditor i.e. Indian Bank.  When all the rights of the Creditor have been subrogated in favour of the Guarantor/Financial Creditor herein, the Financial Creditor is eligible and entitled to proceed against the Corporate Debtor for recovery of the said dues and file the petition under section 7 of the Code before this Adjudicating Authority or before any other Forum of competent jurisdiction. We, therefore, hold that the Financial Creditor is entitled to file this petition as Financial Creditor against the Corporate Debtor.

# 26. As regards the limitation issue, the Corporate Debtor has acknowledged and admitted the debt by issuing the balance confirmation statements as late as on 01.04.2016 and by making payment of Rs.25,00,000/- on October 4, 2016 and the balance sheets of the Corporate Debtor constitute a continuous admission and acknowledgement of its liability. Therefore, this issue of the application being barred by limitation does not survive .

# 27. Financial debt has also  been acknowledged  by the Corporate  Debtor  in its balance sheets as on 31st March,  2017  and  31st March,  2018  (  Annual Reports of the Corporate Debtor at pages 70 t0 90 annexed with the petition).

# 28. It has been further noticed that the Corporate Debtor has made payment of a sum of Rs.1,30,00,000/- to the Financial Creditor between 11th May 2016 to 4th October, 2016 to the Financial Creditor in acknowledgement of its dues to the Corporate Debtor and no payment has been made thereafter. Therefore, the 4th October, 2016 is taken as the date of default.

# 29. Since the amount has admittedly been paid by the Guarantor/ Financial Creditor herein to Indian Bank and the said amount is much above the threshold limit fixed by the Code for filing a petition under section 7 of the Code, which has not been repaid by the Corporate Debtor in spite of requests and demand made by the Financial Creditor, we, therefore, proceed to admit this petition . . . . . . .

---------------------------------------------

M/s.Dishnet Wireless Limited vs. Assistant Commissioner of Income Tax (OSD) - Therefore, the proceedings under the Insolvency and Bankruptcy Code, 2016 (IBC) cannot be pressed into service to dilute the rights of the Income Tax Department under the Income Tax Act, 1961 to re-open the assessment under Section 148 of the Income Tax Act, 1961.

HC Madras (17.05.2022) in M/s.Dishnet Wireless Limited  vs. Assistant Commissioner of Income Tax (OSD) [(W.P. Nos. 34668, 34671, 34649, 34654, 34657 & 34664 of 2018) held that;

• The Resolution Plan submitted on behalf of the petitioners by the Insolvency Resolution Professional under Section 30(6) of the Insolvency and Bankruptcy Code, 2016 on 21.05.2019 has not contemplated any concession from the Income Tax Department though Notices under Section 148 of the Income Tax Act, 1961 had already been issued during March, 2018.  

• The Corporate Insolvency Resolution Plan sanctioned and approved cannot impinge on the rights of the Income Tax Department to pass any fresh Assessment Order under Section 148 read with Sections 143(3) and 147 of the Income Tax Act, 1961.

• Therefore, the proceedings under the Insolvency and Bankruptcy Code, 2016 (IBC) cannot be pressed into service to dilute the rights of the Income Tax Department under the Income Tax Act, 1961 to re-open the assessment under Section 148 of the Income Tax Act, 1961.

 

Excerpts of the order;  

Writ Petition filed under Article 226 of the Constitution of India, for issuance of a Writ of Certiorarified Mandamus, to call for the records comprised in the impugned Notice dated 28.03.2018 bearing PAN:AAACD5767E, as also letter dated 07.12.2018 bearing PAN: AAACD5767E, the notice dated 28.09.2018 bearing PAN: AAACD5767E and the order dated 24.12.2018 bearing PAN: AAACD5767E/ACIT (OSD) / 2018-19 issued in furtherance thereof by the respondent and all proceedings pursuant thereto, and quash the same as illegal, arbitrary and unconstitutional and consequently forbear the respondent from proceeding with re-assessment under Section 147 & 148 of the Income Tax Act, 1961 in respect of the Assessment Year 2012-13.

 

# 3. By the impugned Notices, the respondent Income Tax Department has sought to re-open the completed assessment. By the impugned orders, the objections of the petitioners against the re-opening of the assessment vide impugned Notices issued under Section 148 of the Income Tax Act, 1961 are sought to be assailed.

 

# 4. The short point that arises for consideration in these Writ Petition is whether the proceeding under Section 148 of the Income Tax Act, 1961 were without jurisdiction since the respective petitioners had voluntarily filed Corporate Insolvency Resolution Process (CIRP) under the provisions of the Insolvency and Bankruptcy Code, 2018 on 28.02.2018 before the "National Company Law Tribunal, Mumbai ("NCLT”) and were admitted on 12.03.2018/19.3.2018 and later ordered? 

 

# 5. The proceedings for reopening of the Assessment were initiated under Section 148 of the Income Tax Act, 1961 during March 2018 after the respective petitioners had approached the NCLT, Mumbai for Corporate Insolvency Resolution Process (CIRP) voluntarily under Section 10 of the Insolvency and Bankruptcy Code, 2016.

 

# 7. In the above background, these Writ Petitions were filed on 26.12.2018. Interim orders came to be passed by this Court on 27.12.2018 in these Writ Petitions. In term of the aforesaid interim orders, the respondent, Income Tax Department was allowed to proceed with the assessment but was directed to keep the assessment in a sealed cover.

 

# 8. After the aforesaid interim order was passed, the NCLT, Mumbai approved a resolution plan on 09.06.2020. Clause 9.1.16 of the approved resolution plan reads as under:-

 

Clause	Dispensation	Orders Thereon
9.1.16	From the Approval Date, all inquiries, investigations and proceedings, suits, claims, disputes, proceedings in connection with the corporate debtor, pending or threatened, present or future in relation to any period prior to the Approval Date, or arising on account of implementation of this Resolution Plan shall stand withdrawn and dismissed and all liabilities and obligations therefore, Whether or not set out in the balance sheets of the Corporate Debtor or the profit and loss account statements of the Corporate Debtor will be deemed to have been written off fully, and permanently extinguished an no adverse orders passed in the said matters should apply to the Corporate Debtor or the Resolution Applicant. Upon approval of this Resolution Plan, all new inquiries, investigations, notices, suits, claims, disputes, litigations, arbitrations or other judicial, regulatory or administrative proceeding will be deemed to be barred and will not be initiated or admitted against the Corporate Debtor in relation to any period prior to the Effective Date	Granted, subject to the condition that these shall pertain to any inquiries, investigations, proceedings, suits, claims, disputes, etc. only in relation to the period prior to the Approval Date, and not thereafter. From the Approval Date, the corporate applicants now controlled applicants now controlled by the RA shall be responsible for their own destinies arising out of noncompliance for the  period after such approval.

 

# 9. The learned Senior Counsel for the petitioners submits that the issue is to be decided in the light of the decision of the Hon'ble Supreme Court in Ghanashyam Mishra & Sons (P) Ltd. Vs. Edelweiss Asset Reconstruction Co. Ltd., (2021) 9 SCC 657 which was followed by the Hon'ble Supreme Court in Committee of Creditors of Essar Steel India Limited Vs. Satish Kumar Gupta and Others, (2020) 8 SCC 531.

 

# 10. In support of these Writ Petitions, the learned Senior Counsel also drew attention to the other Sections in Paragraph Nos.132, 144 & 146 in Ghanashyam Mishra & Sons (P) Ltd. case referred to supra which reads as under:-

• "132. The appeal therefore is allowed. The impugned judgment and order dated 6.7.2020 passed by the Allahabad High Court is quashed and set aside. We hold and declare, that the respondents are not entitled to recover any claims or claim any debts owed to them from the Corporate Debtor accruing prior to the transfer date. Needless to state, that the consequences thereof shall follow."

• "144. Insofar as, the judgment authored by Deepak Roshan, J. is concerned, the learned Judge has observed, that since the resolution plan was approved by NCLT on 17.4.2018, 2019 amendment to Section 31(1) of I&B Code would not apply to the said plan. We find, that the finding of the High Court, that the dues owed to the State Government and Central Government would not come within the definition of ‘operational debt’, is incorrect in law in the light of the view that is taken by us. So also the finding, that since the order of NCLT is prior to the date on which Section 31(1) of I&B Code was amended, the provisions of Section 31 would not be applicable, also cannot stand in view of the foregoing observations made by us hereinabove."

• "146. Shri Gurukrishna Kumar, learned Senior Counsel, strenuously argued, that RP/CoC had acted in a fraudulent manner. It is submitted, that though a notice inviting claim was required to be published in local newspapers where the registered office of the Corporate Debtor was situated, the notice was published in the newspaper of Kolkata edition. As per Regulation 6(2)(b) of the 2016 Regulations, the said notice is required to be published in one English and one regional language newspaper with wide circulation at the location of the registered office and corporate office of the Corporate Debtor. Perusal of the record would reveal, that the notice was published in Business Standard and Ananda Bazar Patrika newspapers of the Kolkata edition, which have wide circulation in Ranchi. The corporate office of the Corporate Debtor is at Kolkata whereas its registered office is at Ranchi. In any case, it is to be noticed, that the Forest Department of the State Government had filed intervention application before NCLT as well as NCLAT. When one of the wings of the State Government has approached NCLT and NCLAT, it is difficult to believe, that other organ of the State was not aware about the said proceedings."

 

# 11. The learned Senior Counsel submits that the decision of this Court in M/s.Ruchi Soya Industries Ltd Vs. Union Of India and anr. rendered in W.P.No.31090 of 2015 dated 26.04.2021 is to be distinguished on facts particularly in the light of the decision of the Hon'ble Supreme Court in the above said case.

 

# 12. The learned Senior Counsel further submits that the respondents are not entitled to proceed further in the light of the definition of claim as in Section 3(6) of the Insolvency and Bankruptcy Code, 2016.

 

# 13. It is submitted that the Government is a “corporate debtor” and therefore cannot proceed further as the Corporation Insolvency Resolution Plan (CIRP) has been approved by the NCLT, Mumbai and has extinguished all the claims pre-existing prior to the approval of the aforesaid Corporation Insolvency Resolution Plan (CIRP).

 

# 14. It is submitted that all these issues were considered by the NCLT, Mumbai after the Insolvency Resolution Professional was appointed and after Committee of Creditors approved the plan and since the plan has been approved by the NCLT Mumbai, the respondent Income Tax Department is precluded for proceedings against the petitioner in terms of Section 31 of the Insolvency and Bankruptcy Code, 2016.

 

# 15. The learned Senior Counsel also submits that the decision of this Court in M/S.Ruchi Soya Industries Ltd. Vs. Union Of India another in W.P.No.31090 of 2015 dated 26.04.2021 has been distinguished by the Division Bench of the Karnataka High Court in Union of India Vs. Ruchi Soya Industries Limited vide order dated 27.05.2021 in W.A.No.2575 of 2018 and therefore submits that there is no necessity to remit the case back to the NCLT, Mumbai for examining whether the claim of the respondent, Income Tax Department was factored before approving the plan.

 

# 16. Appearing on behalf of the respondent, the learned Junior Standing Counsel submits that these Writ Petitions were filed after a Moratorium under Section 14 of the Insolvency and Bankruptcy Code, 2016 (IBC) came into force. It is submitted that the aforesaid Moratorium did not preclude the Income Tax Department either from re-opening of the concluded Assessment in the exercise of power conferred under Section 148 of the Income Tax Act, 1961.

 

# 17. The learned Junior Standing Counsel for the respondents further submits that the claim of the Income Tax Department had not crystalized and therefore the question of extinguishment of any claim which was yet to be articulated in an Assessment Order cannot be said to have been extinguished.

 

# 18. The learned Junior Standing Counsel further submits that the Supreme Court in the case of Ghanashyam Mishra & Sons (P) Ltd. Vs. Edelweiss Asset Reconstruction Co. Ltd., (2021) 9 SCC 657 which was relied by the learned Senior Counsel for the petitioner, has itself answered the issue against the petitioner in as much as the amount which was due had crystalized before the Resolution Plan was approved.

 

# 19. It is submitted that in the facts of the present case, only notice under Section 148 of the Income Tax Act, 1961 has been issued and the objections of the petitioner for reopening of the assessment had been overruled by a speaking order. It is also submitted that the petitioners have an alternate remedy against the Assessment Order that has been permitted to be passed and kept in a sealed cover in terms of the interim order dated 27.12.2018.

 

# 20. The learned Junior Standing Counsel drew attention to Section 238 of the Insolvency and Bankruptcy Code, 2016 and submits that there is no bar under the law which inhibits or eclipses the power of the Income Tax Department to continue with the proceedings initiated under Section 148 of the Income Tax Act, 1961.

 

# 21. I have considered the arguments advanced by the learned Senior Counsel for the petitioners and the learned Junior Standing Counsel for the respondent Income Tax Department. Arguments in these Writ Petitions are inspired from the decision of the Hon’ble Supreme Court in Ghanashyam Mishra & Sons (P) Ltd. Vs. Edelweiss Asset Reconstruction Co. Ltd., (2021) 9 SCC 657. 22. The Hon'ble Supreme Court in Paragraph No.138 in Ghanashyam Mishra & Sons (P) Ltd. Vs. Edelweiss Asset Reconstruction Co. Ltd., (2021) 9 SCC 657, held as under:-

• 138. In the foregoing paragraphs, we have held that the 2019 Amendment to Section 31 of the I&B Code is clarificatory and declaratory in nature and therefore will have a retrospective operation. As such, when the resolution plan is approved by NCLT, the claims, which are not part of the resolution plan, shall stand extinguished and the proceedings related thereto shall stand terminated. Since the subject-matter of the petition are the proceedings, which relate to the claims of the respondents prior to the approval of the plan, in the light of the view taken by us, the same cannot be continued. Equally the claims, which are not part of the resolution plan, shall stand extinguished. 

 

# 23. The above conclusion was arrived based on the conclusion in Paragraph No.102, wherein the questions framed by the Hon’ble Supreme Court were answered as under:-

• Conclusion.

• 102. In the result, we answer the questions framed by us as under:-

• 102.1. That once a resolution plan is duly approved by the adjudicating authority under sub-section (1) of Section 31, the claims as provided in the resolution plan shall stand frozen and will be binding on the corporate debtor and its employees, members, creditors, including the Central Government, any State Government or any local authority, guarantors and other stakeholders. On the date of approval of resolution plan by the adjudicating authority, all such claims, which are not a part of resolution plan, shall stand extinguished and no person will be entitled to initiate or continue any proceedings in respect to a claim, which is not part of the resolution plan.

• 102.2. The 2019 Amendment to Section 31 of the I&B Code is clarificatory and declaratory in nature and therefore will be effective from the date on which the I&B Code has come into effect.

• 102.3. Consequently all the dues including the statutory dues owed to the Central Government, any State Government or any local authority, if not part of the resolution plan, shall stand extinguished and no proceedings in respect of such dues for the period prior to the date on which the adjudicating authority grants its approval under Section 31 could be Continued.

 

# 24. In Ghanashyam Mishra & Sons (P) Ltd. Vs. Edelweiss Asset Reconstruction Co. Ltd., (2021) 9 SCC 657, the Hon’ble Supreme Court also held that “The legislative intent of making the resolution plan binding on all the stakeholders after it gets the seal of approval from the adjudicating authority upon its satisfaction, that the resolution plan approved by CoC meets the requirement as referred to in sub-section (2) of Section 30 is that after the approval of the resolution plan, no surprise claims should be flung on the successful resolution applicant. The dominant purpose is that he should start with fresh slate on the basis of the resolution plan approved.”

 

# 25. In M/S.Ruchi Soya Industries Ltd. referred to supra, this had given liberty to the petitioner therein to obtain a clarification from the NCLT as to whether the plan included customs duty paid by the petitioner therein on the import under the subject Bill of Entry therein, whereas, in the present case, the documents reveal that the income tax was not under the contemplation of NCLT.

 

# 26. Upon admission of petitions under Section 7, there are various important duties and functions entrusted on the Resolution Professional and the Committee of Creditors (COC). The Resolution Professional is required to issue a publication inviting claims from all the stakeholders. He is required to collate information and submit necessary details in the information memorandum. The resolution applicants are required to submit their plans on the basis of the details provided in the information memorandum. The Resolution Plans undergo deep scrutiny by the Resolution Professional as well as Committee of Creditors (COC).

 

# 27. Negotiations may be held between Committee of Creditors (COC) and the Resolution Applicant and various modifications may be made so as to ensure that while paying part of the dues of financial creditors as well as operational creditors and other stakeholders, the corporate debtor is revived and is made an on-going concern. After Committee of Creditor (COC) approves the plan, the adjudicating authority is required to arrive at a subjective satisfaction that the plan conforms to the requirements as are provided in Sub-Section (2) to Section 30 of the Insolvency and Bankruptcy Code, 2016. 

 

# 28. Only thereafter, the adjudicating authority can grant its approval to the plan. It is at this stage that the plan becomes binding on the corporate debtor, its employees, members, creditors, guarantors and other stakeholders involved in the resolution plan. The legislative intent behind this is to freeze all the claims so that the resolution applicant starts on a clean slate and is not flung with any surprise claims.

 

# 29. The Resolution Plan submitted on behalf of the petitioners by the Insolvency Resolution Professional under Section 30(6) of the Insolvency and Bankruptcy Code, 2016 on 21.05.2019 has not contemplated any concession from the Income Tax Department though Notices under Section 148 of the Income Tax Act, 1961 had already been issued during March, 2018.

 

# 30. Corporate Insolvency Resolution Plan approved under Section 31 of the Insolvency and Bankruptcy Code, 2016 (IBC) did not contemplate tax dues under the Income Tax Act, 1961. Further, at this stage, the proceedings under 148 of the Act, 1961 had not crystallized.

 

# 31. The objections of the respective petitioners were also not in the light of the voluntary Corporate Insolvency Resolution Proceedings initiated by the petitioners.

 

# 32. Since the proceedings under the Code were initiated by the petitioners few days prior to the initiation of the proceedings under Section 148 of the Income Tax Act, 1961, it was incumbent for the petitioners to have ensured proper notice to the Income Tax Department and obtained appropriate concession in Corporate Insolvency Resolution Plan.

 

# 33. That apart, claims of the Income Tax Department were not considered by the NCLT, Mumbai, while approving the Resolution Plan and therefore the question of abetment of such rights of the Income Tax Department cannot be countenanced.

 

# 34. The provisions of Insolvency and Bankruptcy Code, 2016 (IBC) cannot be interpreted in a manner which is inconsistent with any other law in the time being in force.

 

# 35. Therefore, the Corporate Insolvency Resolution Plan sanctioned and approved cannot impinge on the rights of the Income Tax Department to pass any fresh Assessment Order under Section 148 read with Sections 143(3) and 147 of the Income Tax Act, 1961.

 

# 36. Therefore, the proceedings under the Insolvency and Bankruptcy Code, 2016 (IBC) cannot be pressed into service to dilute the rights of the Income Tax Department under the Income Tax Act, 1961 to re-open the assessment under Section 148 of the Income Tax Act, 1961.

 

# 37. In my view, the Income Tax Department was not precluded from reopening the assessment completed under Section 143(3) of the Income Tax Act,1961.

 

# 38 Therefore, these Writ Petitions filed by these petitioners have to be dismissed. The Assessment Orders which have been passed pursuant to the interim order dated 27.12.2018 are directed to be given to the respective petitioners by the respondent, within a period of thirty days from the date of receipt of a copy of this order.

 

# 39. If the petitioners are so aggrieved by such of those Assessment Orders, the petitioners have to work out their Appellate remedy before the Commissioner of Income Tax (Appeals) under Section 246A of the Income Tax Act, 1961. Since the time for filing appeal would have already expired, liberty is given to the petitioners to file such appeal before the Appellate Commissioner, within a period of thirty days from the date of communication of the Assessments Orders.

 

# 40. These Writ Petitions are dismissed with the observations. No cost. Consequently, connected Miscellaneous Petitions are closed.

 

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Blogger’s Comments;  In the present case application/petition could have been filed in NCLT/NCLAT for the desired results.

In my view the above judgement is "Per Incuriam" in light of the judgement of Hon'ble Supreme Court in "CoC of Essar Steel India Limited vs. Satish Kumar Gupta & Ors." (Civil Appeal No. 8766-67 OF 2019)

# 67. For the same reason, the impugned NCLAT judgment in holding that claims that may exist apart from those decided on merits by the resolution professional and by the Adjudicating Authority/Appellate Tribunal can now be decided by an appropriate forum in terms of Section 60(6) of the Code, also militates against the rationale of Section 31 of the Code. A successful resolution applicant cannot suddenly be faced with “undecided” claims after the resolution plan submitted by him has been accepted as this would amount to a hydra head popping up which would throw into uncertainty amounts payable by a prospective resolution applicant who successfully take over the business of the corporate debtor. All claims must be submitted to and decided by the resolution professional so that a prospective resolution applicant knows exactly what has to be paid in order that it may then take over and run the business of the corporate debtor. This the successful resolution applicant does on a fresh slate, as has been pointed out by us hereinabove. For these reasons, the NCLAT judgment must also be set aside on this count.

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