HC Bombay (2024.02.06) in Imperial Consultants and Securities Ltd. Vs. Assistant CIT [Writ Petition (L) No. 26105 of 2023, Neutral Citation - 2024:BHC-OS:2101-DB] held that;
A bare perusal of section 14(1) makes it clear that sub-clause (a) only prohibits the institution or continuation of suits or proceedings against the corporate debtor. This clearly would not be attracted in the present case as the present proceedings are an appeal filed by the corporate debtor. That being so, the moratorium can never apply to the present First Appeal since it is filed by the corporate debtor
Excerpts of the order;
# 1. Petitioner is aggrieved by an order passed by the Income Tax Appellate Tribunal (“ITAT”) pronounced on 28th June 2023 dismissing Petitioner’s appeal. By the said order, the appeal that was filed by the Revenue also came to be dismissed. Paragraphs 2 to 5 of the impugned order read as under:
“2. At the outset, in response to a query from the Bench, the Learned Special Counsel for the Revenue pointed out that insolvency proceedings have been initiated in the case of Imperial Consultants and Securities Limited.
3. On perusal of record, we find that assessment was framed in the hands of Essar Teleholding Limited. On 09/12/2019, name of Essar Teleholdings was changed to Nirjala Teleholdings. Thereafter, by virtue of order, dated 27/06/2022, passed by the National Company Law Tribunal, Division Bench-II, Chennai [CP(CAA)/22/CHE/2022 in CA (CAA) 54 (CHE)/2021], Nirjala Technologies Limited got merged with Imperial Consultants and Securities Limited. Nov, vide order dated 13/04/2023, the petition preferred by the financial creditor (i.e. Beacon Trusteeship Limited) under Section 7 of the Insolvency and Bankruptcy Code, 2016 (for short ‘IBC’) has been admitted by the National Company Law Tribunal, Special Bench-I, Chennai [CP(IB)/27/CHE/2023] and Interim Resolution Professional has been appointed.
4. On admission of the insolvency petition the moratorium has also come into effect, bringing to halt continuation of pending proceedings as per the provisions contained in Section 14(1) of IBC during the operation of moratorium. The Hon’ble Delhi High Court had in the case of Pr. Commissioner of Income Tax-6, New Delhi Vs. Monnet Ispat & Energy Ltd.: [ITA No. 533 to 552 & 554 of 2017], vide order dated 04/09/2017, held that on admission of petition under Section 7 of the Code, ‘the institution of suits or continuation of pending suits or proceedings’ against the corporate debtor was not permitted and the same would include income tax appeals. In Special Leave Petition arising from the aforesaid order [SLP (C).No. 6487 of 2018, dated 10/08/2018], the Hon’ble Supreme Court upheld overriding nature and supremacy of the provisions of the Code over any other enactment in case of conflicting provisions by virtue of Section 238 of the Code. The same was followed by the Mumbai Bench of the Tribunal in the case of DCIT Vs. Global Softech Ltd: [2022] 140 taxmann.com 103 (Mumbai-Trib.). In view of the aforesaid, the appeal by the Revenue as well as the Assessee are dismissed. Liberty is granted to the Revenue to file the fresh appeal afresh after completion or earlier expiry of the moratorium period, as the case may be. On admission of the admission of Insolvency petition filed by the Financial Creditor under Section 7 of IBC the directors of Imperial Consultants and Securities Limited have become functus officio. The Interim Resolution Professional (IRP) or the Resolution Professional (RP), as the case may be, appointed would now be empowered to pursue all the litigations pertaining to the Assessee-Company in consultation with the Committee of Creditors. Accordingly liberty is granted to IRP/RP appointed to pursue, after complying the provisions of IBC, the present matter either by filling application for recall of the order or by filing fresh appeal as per law.
5. In result, the cross appeals are dismissed.”
# 2. Clause (a) of Sub-section (1) of Section 14 of the Insolvency and Bankruptcy Code, 2016 (“IBC”) only prohibits 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. It does not prohibit any proceedings by the corporate debtor. Paragraphs 30(b), (c) and (d) of the judgment of this Court in Reliance Communication Ltd. v. Rajendra P. Bansal1 read as under:
“30(a)…..
(b) The moratorium that is imposed under section 14 applies only to proceedings against the corporate debtor and only applies qua the assets and properties of the corporate debtor. If monies deposited in court or any other asset/property does not belong to the corporate debtor, the moratorium would not preclude/prevent a creditor from enforcing its rights against the monies/assets/properties. This is clear from a plain reading of Section 14 of the IBC.
(c) Sub-section (1) of Section 14 of the IBC reads as follows:
“14.(1) Subject to provisions of sub-sections (2) and (3), on the insolvency commencement date, the Adjudicating Authority shall by order declare moratorium for prohibiting all of the following, namely:
(a) the institution of suits or continuation of pending suits or proceedings against the corporate debtor including execution of any judgement, decree or order in any court of law, tribunal, arbitration panel or other authority;
(b) transferring, encumbering, alienating or disposing off by the corporate debtor any of its assets or any legal right or beneficial interest therein;
(c) any action to foreclose, recover or enforce any security interest created by the corporate debtor in respect of its property including any action under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (54 of 2002);
(d) the recovery of any property by an owner or lessor where such property is occupied by or in the possession of the corporate debtor.…”
(d) A bare perusal of section 14(1) makes it clear that sub-clause (a) only prohibits the institution or continuation of suits or proceedings against the corporate debtor. This clearly would not be attracted in the present case as the present proceedings are an appeal filed by the corporate debtor. That being so, the moratorium can never apply to the present First Appeal since it is filed by the corporate debtor.”
# 3. Paragraph 24 of the judgment of Apex Court in the matter of New Delhi Municipal Corporation v. Minosha India Ltd.2 reads as under:
“24. Under the IBC, by virtue of the order admitting the application, be it under sections 7, 9 or 10, and imposing moratorium, proceedings as are contemplated in section 14 would be tabooed. This undoubtedly does not include an application under section 11(6) of the 1996 Act by the corporate debtor or for that matter, any other proceeding by the corporate debtor against another party. At least there is no express exclusion of the jurisdiction of the Court or authorities to entertain any such proceeding at the hands of the corporate debtor. However, we must not be oblivious to the other provisions as well. Under section 17, the management of the affairs of the corporate debtor is taken over by the interim resolution professional. The powers of the Board of Directors or the partners of the corporate debtor shall stand suspended and it would be exercised by the interim resolution professional. When the authority changes hands from the interim resolution professional to the resolution professional, the previous management continues to be excluded. The committee of creditors comes into being. Under the supervision, ‘as it were’, of the committee of creditors, all the matters are proceeded with. The resolution plans are received by the resolution professional and the resolution plan which is finally approved by the committee of creditors and still further at the hands of the adjudicating authority, would result in the curtains being wrung down on the moratorium under section 31(3). During this entire period, what is noteworthy is that while in law and in form, the corporate debtor continues to exist and represented by the interim resolution professional to begin with and the resolution professional thereafter, the erstwhile management of the corporate debtor is displaced. When the resolution plan is approved, a new management takes over. All this is contemplated when the CIRP is successful. Undoubtedly, if it is unsuccessful, the corporate debtor slips into liquidation. Therefore, on the one hand, an application under section 7, 9 or 10, does bring in a period which is intended to bring a corporate debtor back to life if possible, ‘a period of calm’, in the words of the respondent. But this is a period during which the management of the corporate debtor is displaced, ironically, a period of turbulent churning. While it may be true that proceedings by the corporate debtor through the resolution professional is contemplated, it is not impossible to contemplate that the resolution professional for whatever reason it may be, does not discharge his duties and conduct proceedings in all matters as he should. We are noting this as this can be the rationale for the Law Giver excluding the period of limitation in regard to suits or applications at the instance of the corporate debtor under section 60(6).”
4. Therefore, in our view, the Tribunal was not correct in dismissing the appeal filed by Petitioner. The Tribunal, however, was correct to say that on admission of the insolvency petition filed by the financial creditor under Section 7 of the IBC, the Directors of Petitioner have become functus officio. The Tribunal gave liberty to the IRP or the RP, as the case may be, to pursue all litigations pertaining to Assessee Company in consultation with the Committee of Creditors. It also gave liberty to the IRP/RP to apply for recall of the impugned order. The Tribunal has missed the fact that the appeal itself has been filed through the Resolution Professional. The cause title of the appeal filed by Petitioner reads as under:
“Imperial Consultants and Securities Limited, (For and behalf of merged Company M/s Nirjala Technologies Ltd.) Essar House, 11, K. Marg, Mahluxmi, Mumbai – 400034 [PAN: AAACS4448K] Through
Resolution Professional C/o Resolve-IPE Private Limited, 1003, Satra Plaza, Sector – 19D, Vashi, Navi Mumbai – 400703 ….. Appellant”5.
Therefore, in our view, the Tribunal should not have dismissed Petitioner’s appeal. The impugned order to that extent is quashed and set aside. The appeal bearing Income Tax Appeal No.7437/MUM/2011 is hereby restored to the file of the Tribunal.
# 6. Petition disposed. No order as to costs.
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