IBC| New Assessment Claims Pending Prior To Resolution Can't Be Brought Up After Successful Approval Of Plan: Allahabad HC

The Allahabad High Court has held that a Resolution Applicant cannot be burdened with Assessment Claims pending prior to Resolution after successful approval of plan.

The Court was considering Writ Tax Petition challenging the Assessment Order passed under Section 144 read with Section 144B of the Income Tax Act, 1961 for the assessment year 2018-19.

The division-bench of Justice Shekhar B. Saraf and Justice Vipin Chandra Dixit observed, "The argument that an assessment that has been kept pending for a prior period and is quantified subsequent to the approval of the Resolution Plan is an argument in sophistry. If this argument is accepted then all authorities would be in a position to keep assessment/re-assessment pending till completion of the Resolution Plan, and thereafter, culminate the same and saddle the successful Resolution Applicant with an unknown burden. Such an action cannot be countenanced as the same would be an anathema to the fundamental principles of the moratorium provided under the Code. The law cannot be read in a manner wherein the basic structure of the Code is breached by hindering the flow of the same by creation of roadblocks and dams – the underlying principle of the Code is to give a fresh start to the Resolution Applicant. Any new liability being fastened after the approval of the Resolution Plan would inherently and palpably be illegal and go beyond the Lakshman Rekha of the Code."

The Petitioner was represented by Advocate Arti Agarwal while the Respondent was represented by Advocate Gaurav Mahajan.

Counsel for the Petitioner submitted that subsequent to the Resolution Plan being approved, the assessment order was passed for the particular assessment year. She submitted that the entire proceedings that were initiated and the impugned order that was passed are without any basis in law and are specifically contrary to Section 31 of the Insolvency and Bankruptcy Code, 2016.

Reliance was placed upon the judgements of the Supreme Court in the case of Committee of Creditors of Essar vs. Satish Kumar Gupta and Ghanshyam Mishra and Sons (P.) Ltd. v. Edelweiss Asset Reconstruction Co. Ltd. to buttress her argument that once a resolution application has come into picture, the successful applicant cannot suddenly be faced with undecided claims.

She further submitted that since as per the Resolution plan, all pending proceedings are extinguished, now the Resolution Applicant cannot be burdened with this assessment order which is not part of the Resolution Plan. She averred that the provisions of IBC ensures that the successful Resolution Applicant starts running the business of the corporate debtor as a fresh innings after the approval of Resolution Plan and therefore the Petitioner cannot be saddled with any unforseen liability and impugned order is bad as it amounted to fastening liability on the Resolution applicant beyond what has been agreed in the Resolution Plan.

The Court agreed with the submissions of the Counsel for the Petitioner and observed that Resolution Applicant cannot be saddled with new claims once a Resolution Plan has been approved.

"Firstly, it is clear by the letter dated March 8, 2021 that the petitioner had informed the Income Tax Authorities with regard to approval of resolution plan. Secondly, the department itself had filed a claim before the Resolution," the Court remarked.

Cause Title: M/s NS Papers Limited and Another vs. Union of India Through Secretary and Others

Appearances:

Petitioners- Advocate Arti Agarwal, Advocate Mahima Jaiswal, Advocate Rishabh Jain

Respondents- Advocate Gaurav Mahajan

Click here to read/ download Jugdement: