Back
RAJASTHAN HIGH COURT
Sandeep Mehta, Rajendra Prakash Soni, JJ.
M/s Emc Limited & Ors. - Appellants
Versus
State of Rajasthan & Ors. - Respondents
D.B. Civil Writ Petition No. 6048 and 6204 of 2020
Decided On : 18-01-2023
Insolvency - Corporate Insolvency Resolution Process - IBC Sections 31, 238 - The court emphasized that upon approval of a resolution plan, all dues of creditors are extinguished, and no demands can be raised for periods prior to the effective date.
Fact of the Case:
The petitioner challenged show cause notices and demand orders issued by the State Tax Department for tax dues pertaining to financial years 2017-18 and 2018-19, arguing that these dues were extinguished following the approval of a resolution plan under the Insolvency and Bankruptcy Code.
Finding of the Court:
The court found that the Deputy Commissioner acted arbitrarily and ignored the legal implications of the approved resolution plan, which extinguished all prior tax liabilities. The demands raised were declared invalid.
Issues: Whether the demands for tax dues raised by the State Tax Department were valid after the approval of the resolution plan under the Insolvency and Bankruptcy Code.
Ratio Decidendi: The court held that once a resolution plan is approved, all dues of creditors, including statutory dues, are extinguished, and no demands can be made for periods prior to the effective date of the resolution plan.
Result: The writ petitions are allowed, and the impugned orders and notices are quashed.
ORDER
1. These two writ petitions involve identical questions of facts and law and hence, are being decided by this common order.
2. Learned counsel Shri Sunil Bhandari has put in appearance on behalf of the respondents, but reply to both the writ petitions has not been filed. Today, when the matters were taken up, Shri Bhandari submitted that the arguments can be heard without waiting for reply because purely legal issues are involved in both writ petitions.
3. Show cause notices dated 07.02.2020 and consequential orders dated 22.04.2020 passed by the respondent Deputy Commissioner, State Tax, Anti-Evasion, Bhilwara, whereby the petitioner has been called upon to explain as to why the ITC claimed by it for the Financial Years 2017-18 and 2018-19 may not be reversed are assailed in these writ petitions.
4. Replies to the show cause notices were filed by the authorized representative of the petitioner, wherein it was pertinently mentioned that the petitioner company became sick. Accordingly, Corporate Insolvency Resolution Process (CIRP) was initiated under the Insolvency and Bankruptcy Code, 2016.
5. The National Company Law Tribunal (NCLT), Kolkata Bench, Kolkata passed a final order dated 21.10.2019 under Section 31(1) of the IBC accepting the resolution plan, duly approved by the Committee of Creditors (CoC). The order of NCLT mandates that the CIRP shall be binding on the Corporate Debtors, EMC Limited, its employees, members, creditors, guarantors including the Central Government, any State Government or any local authority to whom a debt in respect of payment of dues arising under any law for the time being in force, such authorities to whom statutory dues are owed and other stakeholders involved in the Resolution Plan.
6. It was emphasized in the reply to the show cause notices that approval of the Resolution Plan by the NCLT with effect from 21.10.2019 waived and/or extinguished and/or settled all tax dues of whatever nature of Central, State and local authorities pertaining to the period prior to the effective date. It was contended that the notices pertained to the Financial Years 2017-18 and 2018-2019, all liabilities of the petitioner which became a sick unit and went for CIRP stood extinguished on account of the acceptance of the Resolution Plan w.e.f. 21.10.2019 (date of order passed by NCLT). As a consequence, the respondent State GST Department had no jurisdiction whatsoever to initiate proceedings for recovery of any nature for the period prior to acceptance of the Resolution Plan.
7. Learned counsel Shri Vinay Kothari placed reliance on the Division Bench judgment of this court in the case of Ultra Tech Nathdwara Cement Ltd. Vs. Union of India & Ors. [MANU/RH/0283/2020] and urged that the said judgment was cited in the reply filed by the petitioner, but in gross defiance thereof, the Deputy Commissioner, proceeded to pass the order dated 22.04.2020 imposing upon the petitioner, consolidated demands by way of tax, interest and penalty to the tune of Rs.3,55,90,450/- for the Financial Year 2017-18 and Rs.10,21,35,117/- for the Financial Year 2018-19. He urged that all claims of the Corporate Creditors and Statutory Creditors stood extinguished upon approval of the Resolution Plan by the NCLT. Despite that, the Deputy Commissioner, exercised powers in a sheerly perfunctory, arbitrary and laconic manner, while ignoring the detailed reply filed by the petitioner and issued the grossly arbitrary demand orders as above. He, thus, urged that the impugned notices and orders deserve to be quashed and the writ petitions be allowed with exemplary cost.
8. Shri Sunil Bhandari, learned counsel appearing for the respondents, was not in a position to dispute the fact that pursuant to approval of the Resolution Plan by the NCLT, all demands of the Department for the period prior to the effective date stood extinguished. It is also not in dispute that the petitioner company became sick and applied for Corporate Insolvency Resolution P
The approval of a resolution plan under the IBC extinguishes all prior dues, preventing any demands for those periods.
The approval of a Resolution Plan under the IBC extinguishes all prior tax dues, making any recovery attempts invalid.
Approved resolution plans under IBC extinguish all claims not included, barring any demand for debts incurred prior to the plan's effective date.
The approval of a resolution plan under the IBC extinguishes all claims not included in the plan, including tax liabilities.
The approval of a resolution plan under the IBC extinguishes all claims not included in the plan, including tax liabilities, ensuring a fresh start for the corporate debtor.
Approved resolution plans under the Insolvency and Bankruptcy Code extinguish all pre-CIRP claims not included, including statutory dues from tax authorities.
The Insolvency and Bankruptcy Code's provisions override tax claims from pre-insolvency periods, barring enforcement of assessments not included in a Resolution Plan.
Point of Law - 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 d....
An indispensable Tool for Legal Professionals, Endorsed by Various High Court and Judicial Officers
Please visit our Training & Support
Center or Contact Us for assistance
Scan Me!
India’s Legal research and Law Firm App, Download now!
For Daily Legal Updates, Join us on :
Back to top
