Once IBC Resolution Plan Is Approved All Claims Stand Frozen & Binding: Delhi HC Quashes Proceedings Under Income Tax Act

The Court said that no person will be entitled to initiate or continue any proceedings with respect to a claim, which is not part of the Resolution Plan, in this case, Income Tax Authorities.

The Division Bench of Justice Mini Pushkarna and Justice Dharmesh Sharma observed, “This Court further notes 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”…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.”

Advocate Palash S Singhai appeared for the Petitioner.

A writ petition was filed seeking to quash the assessment order under Section 143(3) of the Income Tax Act, 1961 and notices under Section 274 of the Act issued by the Deputy Commissioner Of Income Tax.

The petitioner-company submitted that the impugned order and notices were sent after the approval of the Resolution Plan for the revival and restructuring of the petitioner-company by the National Company Law Tribunal (“NCLT”), Chennai.

The Court highlighted that on the date of approval of the 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 Court relied on the judgment of the Delhi High Court in Ireo Fiveriver Pvt Ltd V. Income Tax Department & Anr. (2024 Delhi) which has held, “A successful resolution applicant cannot suddenly be faced with “undecided” claims after the resolution plan submitted by him has been accepted as this would mount to a hydra head popping up which would throw into uncertainty amounts payable by a prospective resolution applicant who would successfully take over the business of the corporate debtor. All claims must be submitted to and decided by the resolution professional so that a prospective resolution applicant knows exactly what has to be paid in order that it may then take over and run the business of the corporate debtor. This the successful resolution applicant does on a fresh slate, as has been pointed out by us hereinabove.”

The Court held that the impugned order clearly showed that 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, it concluded.

Accordingly, the Court allowed the petition and set aside the impugned order and notices.

Cause Title: The National Sewing Thread Company Limited v. Deputy Commissioner Of Income Tax & Ors. (Neutral Citation: 2024:DHC:4771-DB)

Appearances:

Petitioner: Advocate Palash S Singhai

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