Once Resolution Plan is approved by COC, it is binding on all stakeholders. High Court quashed Assessment order and penalty notice
In a recent judgment, Hon’ble Delhi High Court has quashed assessment order holding that once Resolution Plan is approved by COC, it is binding on all stakeholders. The successful Resolution Applicant starts running the business of the Corporate Debtor on a fresh slate.
ABCAUS Case Law Citation:
ABCAUS 4115 (2024) (06) HC
Important Case Laws relied upon:
Ireo Fiveriver Pvt Ltd Versus Income Tax Department & ANR
Essar Steel India Ltd. Committee of Creditors v. Satish Kumar Gupta, [(2020) 8 SCC 531
In the instant case, the assessee had filed a writ petition seeking quashing of the Assessment Order passed under Section 143(3) of Income Tax Act, 1961, notice of demand u/s 156 and Notices of penalty under Section 274.
It was contended that aforesaid notices had been issued after the approval of the Resolution Plan for the revival and restructuring of the petitioner-company by National Company Law Tribunal (“NCLT”). It was the contention that the impugned assessment order and notice was legally untenable and in teeth of the provisions of Insolvency and Bankruptcy Code (“IBC”), 2016, which envisages revival/ resolution of the Company on a “Clean Slate Basis”.
The Petitioner placed relienac eon the judgment of the Division Bench of the Hon’ble High Court and submitted that the case of the petitioner was clearly covered by the said order.
The Hon’ble High Court observed NCLT even before the relevant financial year had allowed the application seeking initiation of the Corporate Insolvency Resolution Process (“CIRP”) of the petitioner-company and moratorium under Section 14 of the IBC, 2016 was into force.
Subsequently, the CIRP of the petitioner culminated in successful manner, wherein, Resolution Plan for the revival and rehabilitation of the petitioner-company was submitted and the same was accordingly approved by the Committee of Creditors (“COC”) within the relevant financial year. The final approval to Resolution Plan along with the necessary reliefs and concessions, including the extinguishment of all the past dues and claims not forming part of the Resolution Plan on the date of approval, was accorded within the relevant financial year.
The Hon’ble High Court noted that upon approval of the Resolution Plan, a new management took over the petitioner-company, in order to implement the Resolution Plan as per the scheme of IBC, on a “Clean Slate Basis‟.
The Hon’ble High Court further observed that it is settled proposition of law that once a Resolution Plan is duly approved by the adjudicating authority under Section 31(1) of IBC, 2016, the claims as provided in the Resolution Plan shall stand frozen and it will be binding on the corporate debtor and its employees, members, creditors, including the Central Government, any State Government or any local authority, guarantors and other stake holders. On the date of approval of Resolution Plan by the adjudicating authority, all such claims, which are not part of the 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.
The Hon’ble High Court pointed out that the principle of clean slate has been time and
again reiterated and reaffirmed by the Supreme Court as well as by the High Court. Thus, upon approval of a Resolution Plan or sale as going concern, is duly approved by the adjudicating authority, all the previous liabilities and claims of any person qua the corporate debtor, cease to exist and extinguish.
The Hon’ble High Court stated that as held by the Co-ordinate Bench and Hon’ble Supreme Court the law is well settled that once a Resolution Plan is approved by the COC, it shall be binding on all the stakeholders. Thus, the successful Resolution Applicant starts running the business of the Corporate Debtor on a fresh slate.
Considering the aforesaid law, the Hon’ble High Court opined that impugned Assessment Order as well as the Notice of penalty cannot stand in the eyes of the law.
Accordingly, the Hon’ble High Court set aside the impugned assessment order , notice of demand and penalty notice.
Download Full Judgment Click Here >>
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