2024 (3) TMI 1447 - AT - IBC

Approval of Resolution Plan - Assessment Orders were passed ex-parte u/s 144 of the Income Tax Act against the Corporate Debtor since the Corporate Debtor did not participate - HELD THAT - All Assessment Orders were passed subsequent to initiation of CIRP and initiation of moratorium which is an admitted fact. In facts of the present case when no claim was filed and Appellant itself submits that Assessment Orders were passed after enforcement of moratorium there are no ground to interfere with the order passed by the Adjudicating Authority approving the Resolution Plan. Appeal dismissed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Appellate Tribunal were:

• Whether the Income Tax Department (the Appellant) could challenge the approval of the Resolution Plan under the Corporate Insolvency Resolution Process (CIRP) when it did not file its claim during the CIRP despite having outstanding demands against the Corporate Debtor.
• Whether the Assessment Orders passed by the Income Tax Department after the initiation of CIRP and during the moratorium period under the Insolvency and Bankruptcy Code (IBC) could be considered valid and enforceable against the Corporate Debtor.
• Whether the approval of the Resolution Plan by the National Company Law Tribunal (NCLT) was proper in light of the Income Tax Department's claims and the timing of the Assessment Orders.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Validity of Income Tax Department's challenge to the Resolution Plan approval despite non-filing of claim during CIRP

Relevant legal framework and precedents: Under the Insolvency and Bankruptcy Code, 2016, once the CIRP is initiated, a moratorium is imposed, and all claims against the Corporate Debtor must be submitted and admitted during the CIRP. The Committee of Creditors (CoC) evaluates claims and approves a Resolution Plan, which once approved by the Adjudicating Authority (NCLT), binds all stakeholders. Claims not filed during CIRP are generally excluded from the resolution process.

Court's interpretation and reasoning: The Tribunal noted that the Income Tax Department did not file any claim during the CIRP despite having substantial outstanding demands against the Corporate Debtor. The Department admitted that it became aware of the CIRP and the Resolution Plan approval only after the plan was approved by the NCLT. The Tribunal emphasized that since the Income Tax Department was not a part of the CoC or the list of creditors, and no amount was allocated to it in the Resolution Plan, it had no locus to challenge the approval post facto.

Key evidence and findings: The Appellant's own affidavit and submissions confirmed non-filing of claims during CIRP and knowledge of the CIRP only after approval of the Resolution Plan. The Resolution Professional also confirmed the absence of any claim or allocation towards the Income Tax Department.

Application of law to facts: The Tribunal applied the principle that claims must be filed during CIRP to be considered and that post-approval challenges by non-participating creditors cannot unsettle the Resolution Plan. The Income Tax Department's failure to file claims within the CIRP timeline precluded it from challenging the plan.

Treatment of competing arguments: The Income Tax Department argued unawareness of the CIRP process and late knowledge of the Resolution Plan approval. The Tribunal found this insufficient to override the statutory framework mandating claim submission within the CIRP period.

Conclusion: The Tribunal held that the Income Tax Department's challenge was not maintainable as it did not participate in the CIRP and failed to file claims within the prescribed period.

Issue 2: Validity and effect of Assessment Orders passed during moratorium period under CIRP

Relevant legal framework and precedents: Section 14 of the Insolvency and Bankruptcy Code imposes a moratorium upon initiation of CIRP, prohibiting institution or continuation of legal actions against the Corporate Debtor, including recovery proceedings. The moratorium generally suspends enforcement of claims and proceedings.

Court's interpretation and reasoning: The Tribunal examined the detailed table of Assessment Orders passed by the Income Tax Department for various Assessment Years, all dated subsequent to the initiation of CIRP and the moratorium period. The Tribunal observed that these Assessment Orders were passed ex parte due to non-participation of the Corporate Debtor and were thus barred from enforcement during moratorium.

Key evidence and findings: The Income Tax Department produced a comprehensive list of Assessment Orders with dates of initiation and orders passed, all post-dating the CIRP commencement. The Corporate Debtor's Audit Report acknowledged contingent liability to Income Tax dues, but no claims were filed during CIRP.

Application of law to facts: Given the moratorium, the Tribunal reasoned that the Assessment Orders passed after initiation of CIRP could not be enforced against the Corporate Debtor during the CIRP. The moratorium protects the corporate debtor from such proceedings and requires that claims be submitted and resolved through the CIRP process.

Treatment of competing arguments: The Income Tax Department contended that these Assessment Orders represented legitimate claims. However, the Tribunal found that the moratorium barred enforcement and that the Department's failure to file claims during CIRP meant these demands were not considered in the Resolution Plan.

Conclusion: The Tribunal concluded that Assessment Orders passed during the moratorium period could not be enforced independently and that the Income Tax Department's claims were excluded from the Resolution Plan due to non-filing during CIRP.

Issue 3: Legitimacy of NCLT's approval of the Resolution Plan in light of Income Tax claims

Relevant legal framework and precedents: The Insolvency and Bankruptcy Code mandates that the Resolution Plan must be approved by the CoC and then sanctioned by the Adjudicating Authority. Once approved, the plan binds all stakeholders, including creditors whose claims were admitted. The Code provides finality to the Resolution Plan to ensure certainty and avoid protracted litigation.

Court's interpretation and reasoning: The Tribunal noted that the Resolution Plan was approved by the CoC and the NCLT after due process. Since the Income Tax Department did not file claims and was not part of the CoC, the NCLT had no obligation to consider the Department's claims. The Tribunal emphasized the importance of finality and the statutory scheme which excludes claims not filed during CIRP.

Key evidence and findings: The Resolution Professional's affidavit and submissions confirmed the absence of Income Tax claims in the CIRP process and the consequent non-allocation of any amount to the Department in the Resolution Plan.

Application of law to facts: The Tribunal applied the principle that the Adjudicating Authority's approval of the Resolution Plan is binding and not open to collateral attack by creditors who failed to participate in the CIRP. The Income Tax Department's claims, being post-initiation and unfiled, were rightly excluded.

Treatment of competing arguments: The Income Tax Department argued that its claims were substantial and should have been considered. The Tribunal rejected this, holding that procedural non-compliance and statutory moratorium barred such consideration.

Conclusion: The Tribunal upheld the NCLT's approval of the Resolution Plan, finding no grounds for interference.

3. SIGNIFICANT HOLDINGS

The Tribunal held:

"In facts of the present case, when no claim was filed and Appellant itself submits that Assessment Orders were passed after enforcement of moratorium, we see no ground to interfere with the order passed by the Adjudicating Authority approving the Resolution Plan."

Core principles established include:

• Claims against a Corporate Debtor must be filed and admitted during the CIRP to be considered in the Resolution Plan.
• The moratorium under the Insolvency and Bankruptcy Code bars enforcement of claims and legal proceedings against the Corporate Debtor once CIRP is initiated.
• Assessment Orders or demands raised by tax authorities after initiation of CIRP and during moratorium cannot be enforced independently and must be submitted as claims during CIRP.
• The approval of a Resolution Plan by the Adjudicating Authority is binding and not open to challenge by creditors who failed to participate or file claims during CIRP.

Accordingly, the Tribunal dismissed the Appeal filed by the Income Tax Department, affirming the NCLT's approval of the Resolution Plan for the Corporate Debtor.