The National Sewing Thread Company Limited vs. Deputy Commissioner Of Income Tax &Ors. (Neutral Citation: 2023:DHC:4471-DB) - (High Court of Delhi) (24 Jun 2024)

Once a Resolution Plan is approved by the COC, it shall be binding on all the stakeholders

MANU/DE/4232/2024

Direct Taxation

The Petitioner is seeking quashing of the Assessment Order issued by the Respondent no. 1/Deputy Commissioner of Income Tax under Section 143(3) of Income Tax Act, 1961 for the Assessment Year 2022-23 and Financial Year, 2021-The present petition also assails the Demand Notice under Section 156 of the Income Tax Act, 1961 and Notices dated 23rd May, 2024 under Section 274 of the Income Tax Act, 1961 issued by the Respondent no. 1.

The Petitioner company submits that, the Notices have been issued after the approval of the Resolution Plan for the revival and restructuring of the petitioner-company by learned National Company Law Tribunal ("NCLT"), vide order. The Petitioner submits that, the impugned order and notice is 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’.

Present Court notes that the learned NCLT, Chennai, vide its order has 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 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") with requisite majority of votes on 13th September, 2021. Subsequently, on 06th December, 2021, 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.

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’.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 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. The impugned Assessment Order as well as the Notice cannot stand in the eyes of the law.

The impugned order passed under Section 143(3) of the Income Tax Act, 1961; Notice of Demand under Section 156 of the said Act, and Notice passed under Section 274 of the said Act are set aside. Petition allowed.

Tags : ASSESSMENT DEMAND LEGALITY