Allowed

Ireo Fiveriver Pvt. Ltd. v. Income Tax Department & Anr.

Delhi HC5 Mar 2024W.P.(C)/12461/2022

Case brief

AI extract

What is this about?

The Delhi High Court allowed a writ petition challenging a reassessment notice issued under Section 148A(d) of the Income Tax Act. Relying on Supreme Court precedents under the I&B Code, the court held that upon resolution plan approval, all claims including those of tax authorities are frozen, and the applicant cannot be liable for periods prior thereto.

What did the court decide?

The instant writ petition is allowed and the impugned order dated 30 July 2022 under Section 148A(d) of the Act is set aside.

Ireo Fiveriver Pvt. Ltd. Vs Income Tax Department… — Insolvency and Bankruptcy | Delhi HC (2024)

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$~30

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IN THE HIGH COURT OF DELHI AT NEW DELHI

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- W.P.(C) 12461/2022

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IREO FIVERIVER PVT LTD ..... Petitioner

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Through: Ms. Udita Singh, Adv.

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versus

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INCOME TAX DEPARTMENT & ANR. ..... Respondents

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Through: Mr. Shlok Chandra, Sr.SC with Ms. Madhavi Shukla and Ms. Priya Sarkar, Jr.SCs along with Mr. Ujjawal Jain, Adv.

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CORAM:

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HON'BLE MR. JUSTICE YASHWANT VARMA HON'BLE MR. JUSTICE PURUSHAINDRA KUMAR KAURAV

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O R D E R % 05.03.2024

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This writ petition impugns the order dated 30 July 2022 referrable to Section 148A(d) of the Income Tax Act, 1961 [“ Act ”] and pertains to Assessment Year [ “AY” ] 2017-18.

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The petitioner is the corporate debtor and the Resolution Plan in respect of which came to be approved by the National Company Law Tribunal [“ NCLT ”] on 06 August 2021. Ex facie, it is manifest that the notice for reassessment pertains to a period prior to the acceptance and approval of the Resolution Plan.

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In is in the aforesaid backdrop that we take note of the judgment rendered by the Supreme Court in Ghanashyam Mishra & Sons (P) Ltd. v. Edelweiss Asset Reconstruction Co. Ltd. [ (2021) 9 SCC 657] wherein the following principles came to be laid down:-

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This is a digitally signed order.

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The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 13/03/2024 at 11:49:38

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“ 93. As discussed hereinabove, one of the principal objects of the I&B Code is providing for revival of the corporate debtor and to make it a going concern. The I&B Code is a complete Code in itself. Upon admission of petition under Section 7 there are various important duties and functions entrusted to RP and CoC. RP is required to issue a publication inviting claims from all the stakeholders. He is required to collate the said information and submit necessary details in the information memorandum. The resolution applicants submit their plans on the basis of the details provided in the information memorandum. The resolution plans undergo deep scrutiny by RP as well as CoC. In the negotiations that may be held between CoC and the resolution applicant, 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 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) of Section 30 of the I&B Code. 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. If that is permitted, the very calculations on the basis of which the resolution applicant submits its plans would go haywire and the plan would be unworkable.

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94. We have no hesitation to say that the words “other stakeholders” would squarely cover the Central Government, any State Government or any local authorities. The legislature noticing that on account of obvious omission certain tax authorities were not abiding by the mandate of the I&B Code and continuing with the proceedings, has brought out the 2019 Amendment so as to cure the said mischief. We therefore hold that the 2019 Amendment is declaratory and clarificatory in nature and therefore retrospective in operation.”

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We also take note of the identical position which was expressed

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by the Supreme Court in Essar Steel India Ltd. Committee of Creditors v. Satish Kumar Gupta , [(2020) 8 SCC 531] where the following pertinent observations came to be made :-

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“105. Section 31(1) of the Code makes it clear that once a resolution plan is approved by the Committee of Creditors it shall

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This is a digitally signed order. The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 13/03/2024 at 11:49:38

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be binding on all stakeholders, including guarantors. This is for the reason that this provision ensures that the successful resolution applicant starts running the business of the corporate debtor on a fresh slate as it were. In SBI v. V. Ramakrishnan , (2018) 17 SCC 394, this Court relying upon Section 31 of the Code has held:

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“ 25. Section 31 of the Act was also strongly relied upon by the respondents. This section only states that once a resolution plan, as approved by the Committee of Creditors, takes effect, it shall be binding on the corporate debtor as well as the guarantor. This is for the reason that otherwise, under Section 133 of the Contract Act, 1872, any change made to the debt owed by the corporate debtor, without the surety's consent, would relieve the guarantor from payment. Section 31(1), in fact, makes it clear that the guarantor cannot escape payment as the resolution plan, which has been approved, may well include provisions as to payments to be made by such guarantor. This is perhaps the reason that Annexure VI( e ) to Form 6 contained in the Rules and Regulation 36(2) referred to above, require information as to personal guarantees that have been given in relation to the debts of the corporate debtor. Far from supporting the stand of the respondents, it is clear that in point of fact, Section 31 is one more factor in favour of a personal guarantor having to pay for debts due without any moratorium applying to save him.

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106. Following this judgment in SBI v. V. Ramakrishnan , (2018) 17 SCC 394, it is difficult to accept Shri Rohatgi's argument that that part of the resolution plan which states that the claims of the guarantor on account of subrogation shall be extinguished, cannot be applied to the guarantees furnished by the erstwhile Directors of the corporate debtor. So far as the present case is concerned, we hasten to add that we are saying nothing which may affect the pending litigation on account of invocation of these guarantees. However, NCLAT judgment being contrary to Section 31(1) of the Code and this Court's judgment in SBI v. V. Ramakrishnan , (2018) 17 SCC 394, is set aside.

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107. For the same reason, the impugned NCLAT judgment [ Standard Chartered Bank v. Satish Kumar Gupta , 2019 SCC OnLine NCLAT 388] 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

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This is a digitally signed order.

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The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 13/03/2024 at 11:49:38

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prospective resolution applicant who would 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, NCLAT judgment must also be set aside on this count.

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In view of the aforesaid principles, the successful resolution applicant cannot be foisted with any liabilities other than those which are specified and factored in the Resolution Plan and which may pertain to a period prior to the resolution plan itself having been approved.

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Consequently, we allow the instant writ petition and set aside the impugned order dated 30 July 2022 under Section 148A(d) of the Act.

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YASHWANT VARMA, J.

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PURUSHAINDRA KUMAR KAURAV, J.

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MARCH 5, 2024/p

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This is a digitally signed order.

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The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 13/03/2024 at 11:49:38

Ireo Fiveriver Pvt. Ltd. v. Income Tax Department & Anr.

Case brief

What is this about?

What did the court decide?

Ireo Fiveriver Pvt. Ltd. v. Income Tax Department & Anr.

Case brief

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What did the court decide?

What the court decided

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