2025 (6) TMI 1594 - AT - Service Tax

Validity of Refund Claim prior to the approval of the Resolution Plan under the Insolvency and Bankruptcy Code 2016 (IBC) - Appellant claim that though the demand raised got abated on approved the Resolution Plan but refund claim survives - HELD THAT - The Hon ble Apex Court in Ghanashyam Mishra and Sons Pvt. Ltd. 2021 (4) TMI 613 - SUPREME COURT has covered the situation where an appeal of identical nature is sought to be pursued since as contended by the Ld. Special Counsel paragraph (i) of the conclusion specifically refers to any person . This apart once the Resolution Plan is approved in terms of Section 31(1) of IBC the original identity of the Corporate Debtor ceases to exist. Moreover while upholding the objectives of IBC the Hon ble Apex Court in Ghanashyam Mishra and in Swiss Ribbons Private Limited 2019 (1) TMI 1508 - SUPREME COURT has categorically held that the liabilities of a Corporate Debtor should not discourage a bonafide successor. No doubt the maximization of value of assets is viewed as only to benefit such successor but however once the original identity is lost along with statutory liabilities such Corporate Debtor cannot choose to stake a claim just because it had litigated its claim regarding refund the allowability or otherwise of such claim is a different matter altogether. Conclusion - The status of Corporate Debtor does not alter depending on whether an appeal pertains to a demand or refund; any litigation cannot be initiated and if initiated cannot continue as categorically held by the Hon ble Apex Court in Ghanashyam Mishra. There are no merit in the Appellant-Assessee s contention and therefore the same is not entertainable - appeal closed.

Summary

1. ISSUES PRESENTED and CONSIDERED

- Whether the appeals against demands raised prior to the approval of the Resolution Plan under the Insolvency and Bankruptcy Code, 2016 (IBC) survive or stand abated once the Resolution Plan is approved by the National Company Law Tribunal (NCLT).

- Whether claims, including statutory dues and refund claims, not included in the approved Resolution Plan can be pursued or continued after such approval.

- Whether the appeal pertaining to a refund claim, pursued by the Corporate Debtor post-approval of the Resolution Plan and managed under the Monitoring Committee, can be entertained or must also be abated.

- The effect of the Supreme Court's ruling in Ghanashyam Mishra and Sons Pvt. Ltd. vs Edelweiss Asset Reconstruction Company Ltd. & Ors. on the continuation of proceedings post-Resolution Plan approval.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Survival of Appeals Post-Approval of Resolution Plan

Relevant Legal Framework and Precedents: The primary legal framework is Section 31(1) of the Insolvency and Bankruptcy Code, 2016, which governs the approval of Resolution Plans by the Adjudicating Authority (NCLT). The Supreme Court's decision in Ghanashyam Mishra and Sons Pvt. Ltd. (Civil Appeal No.8129 of 2019) is pivotal, wherein the Court clarified that upon approval of a Resolution Plan, all claims not included in the plan stand extinguished and no proceedings can be initiated or continued in respect of such claims.

Court's Interpretation and Reasoning: The Tribunal noted that the Resolution Plan was approved by the NCLT, an uncontested fact between the parties. Citing the Supreme Court's ruling, the Tribunal emphasized that the approval of the Resolution Plan freezes all claims included therein and extinguishes all others not part of the plan. The Tribunal observed that this principle applies equally to the present appeals arising from demands predating the Resolution Plan's approval.

Key Evidence and Findings: The order of the NCLT approving the Resolution Plan was examined and found valid and binding. Both parties agreed on the approval's existence, though they differed on its finality and effects.

Application of Law to Facts: Applying the Supreme Court's ruling, the Tribunal held that the appeals challenging demands that were not part of the Resolution Plan could not survive. The legal effect of the approval is that such claims are extinguished, and proceedings challenging them must cease.

Treatment of Competing Arguments: The appellant contended that the appeals should not abate because the Resolution Professional had sought to withdraw and a new Resolution Professional was being appointed, implying a lack of finality. The Tribunal rejected this, emphasizing the binding nature of the Resolution Plan approval and the Supreme Court's clear directive that no proceedings can continue thereafter.

Conclusion: The appeals against demands not included in the approved Resolution Plan stand abated and cannot be pursued further.

Issue 2: Continuation of Appeals Pertaining to Refund Claims Post-Resolution Plan Approval

Relevant Legal Framework and Precedents: Section 31(1) of IBC and the Supreme Court decisions in Ghanashyam Mishra and Sons Pvt. Ltd. and Swiss Ribbons Private Limited and Anr. vs Union of India (2019) 4 SCC 17. The latter case underscores the objective of maximizing the value of the Corporate Debtor's assets during insolvency resolution.

Court's Interpretation and Reasoning: The appellant argued that the refund claim appeal should be entertained because it aimed to enhance the Corporate Debtor's assets, consistent with the objectives of the IBC and the Resolution Plan's provisions (specifically clause 4.5.3). The appellant emphasized that the Corporate Debtor was managed by a Monitoring Committee under the Resolution Plan, which was pursuing the refund claim for the benefit of the Corporate Debtor's estate.

Key Evidence and Findings: The Tribunal examined the Resolution Plan's clause allowing the Corporate Debtor to pursue claims beneficial to its assets. However, it also considered the Supreme Court's categorical holding that once the Resolution Plan is approved, the Corporate Debtor's original identity ceases, and all claims not included in the plan stand extinguished.

Application of Law to Facts: The Tribunal found that the Supreme Court's ruling applies equally to refund claims. The Corporate Debtor cannot continue litigation post-approval simply because it might benefit from a refund. The extinguishment of claims under Section 31(1) is absolute and applies to any person, including the Corporate Debtor and its successors or committees managing its affairs.

Treatment of Competing Arguments: The appellant's reliance on Swiss Ribbons and the argument for asset maximization was acknowledged but found insufficient to override the binding effect of the Resolution Plan approval. The Tribunal emphasized that allowing such claims to continue would contradict the IBC's objective of providing finality and certainty to insolvency proceedings.

Conclusion: Appeals pertaining to refund claims, even if pursued by the Monitoring Committee under the Resolution Plan, cannot be entertained after the plan's approval and must be abated.

Issue 3: Effect of Resolution Plan Approval on Corporate Debtor's Identity and Liabilities

Relevant Legal Framework and Precedents: Section 31(1) of IBC and the Supreme Court's analysis in Ghanashyam Mishra and Sons Pvt. Ltd. and Swiss Ribbons Private Limited.

Court's Interpretation and Reasoning: The Tribunal highlighted that the Supreme Court has held that upon approval of the Resolution Plan, the Corporate Debtor's original identity ceases to exist. The liabilities not included in the plan are extinguished, and the Corporate Debtor cannot be burdened with statutory liabilities or continue litigation related to such liabilities.

Key Evidence and Findings: The Tribunal noted that the Corporate Debtor's management by a Monitoring Committee or Resolution Professional post-approval does not revive or preserve claims extinguished by the plan. The legal personality and liabilities of the Corporate Debtor are effectively transformed by the Resolution Plan's approval.

Application of Law to Facts: The Tribunal applied this principle to reject the appellant's attempt to continue litigation on refund claims, emphasizing that the Corporate Debtor's status and liabilities are fixed and cannot be selectively revived.

Treatment of Competing Arguments: The appellant's argument that pursuing refund claims benefits the Corporate Debtor's successors was considered but found inconsistent with the statutory scheme and Supreme Court's rulings.

Conclusion: The Corporate Debtor's identity and liabilities are conclusively altered upon Resolution Plan approval, precluding continuation of claims or appeals not included in the plan.

3. SIGNIFICANT HOLDINGS

- "Once a resolution plan is duly approved by the Adjudicating Authority under subsection (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, and 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 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."

- "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 I&B Code has come into effect."

- "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."

- The Corporate Debtor's original identity ceases upon approval of the Resolution Plan, and liabilities not included in the plan are extinguished, precluding continuation of litigation, whether for demands or refunds.

- The objective of maximization of value of assets under the IBC does not permit continuation of claims or appeals extinguished by the Resolution Plan approval.

- Final determinations: Appeals challenging demands or claims not included in the approved Resolution Plan stand abated and cannot be pursued or continued. Even refund claims pursued post-approval by the Corporate Debtor or its Monitoring Committee cannot survive. The appeals before the Tribunal are accordingly disposed of.